1 Participation Constraints in the Stock Market: Evidence from Unexpected Inheritance due to Sudden Death *

Abstract: We use a natural experiment to investigate the impact of participation constraints on individuals ' decisions to invest in the stock market. Unexpected inheritance due to sudden deaths results in exogenous variation in financial wealth and allows us to examine whether fixed entry and ongoing participation costs cause non-participation. We have two key findings. First, windfall wealth has a positive effect on participation. Second, the majority of households do not react to sizeable windfalls by entering the stock market—even over longer horizons. Overall, these findings suggest that participation by many individuals is not constrained by financial participation costs, but by behavioral and psychological barriers