Temperance in Stock Market Participation: Evidence from France

• Published in: Economica (London) Vol. 77; no. 306; pp. 314 - 333
• Main Authors: ARRONDEL, LUC, PARDO, HECTOR CALVO, OLIVER, XISCO
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01.04.2010; The Suntory and Toyota International Centres for Economics and Related Disciplines; Wiley
• Subjects: Asset income; Borrowing; Correlation analysis; Correlations; Earnings; Economic theory; Economics and Finance; Financial risk; France; Households; Humanities and Social Sciences; Investment analysis; Investment decision; Investment risk; Liquidity; Portfolio selection; Proxy reporting; Risk aversion; Risk aversion preference; Securities markets; Stock exchange; Stock markets; Studies; Uncertainty; Wealth; France
• ISSN: 0013-0427; 1468-0335
• DOI: 10.1111/j.1468-0335.2008.00733.x

We explore empirically whether earnings uncertainty and borrowing constraints deter households from the stock market, consistent with the predictions of theoretical studies of portfolio choice in the presence of uninsurable earnings. Since recent extensions highlight the importance of the correlation between earnings and financial risks, here we use a self-assessed proxy from the DELTA-TNS 2002 cross-sectional survey to empirically assess the impact. Although income risk does not affect the participation decision of households' reporting a negative correlation, it does lower the participation of those who report a non-negative sign, consistent with economic theory predictions.