Most households persistently invest in riskless assets but not stocks, and may
do so because they perceive the information required for market participation
to be costly relative to expected benefits. In a CCAPM, increased risk
aversion, income risk, and lower resources reduce the information expense
sufficient to deter stockholding. Bivariate probit analysis using the 1983-89
Survey of Consumer Finances shows that households with lower risk aversion,
higher education, and greater wealth who were nonstockholders in 1983 had an
increased conditional probability of entering by 1989, while 1983 stockholders
with lower resources, more limited education, and greater risk aversion were
more likely to be nonstockholders by 1989.
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Last update: July 19, 2001