WORKING PAPER NO. 125 The Distribution of Gains from Access to Stocks

Recent market developments raise doubts regarding further spread of household stock market participation. We study, computationally and econometrically, net gains from access to stocks, and estimate the potentially changing role of their determinants across the distribution of such gains for US households. We highlight conflicting influences on net gains using a computational portfolio model, and use empirical estimates to derive differences in characteristics of potential entrants relative to marginal investors by the end of the dramatic recent expansion in the stockholder base. Findings suggest that downturns can have significant effects around the participation margin, through their influence on incomes, wealth, and employment. The role of education is found more limited than typically estimated, and confined to the low end of the gains distribution. Estimated characteristics of potential entrants relative to marginal stockholders suggest that further growth in participation poses considerable challenges, in view of more limited finances, younger age, more limited education and financial alertness, and above all significantly less self-declared willingness to assume financial risk by potential stockholders compared to marginal investors. The hurdle to financial practitioners interested in expanding the stockolder base is not estimated to be small