Behavioral Determinants of Stock Market Participation

Abstract: In this paper we present the effect of two behavioral factors, optimism and sociability, on stock market participation. We use novel measures of optimism and sociability based on the questions from the Survey of Health, Ageing and Retirement in Europe (SHARE). Our results show that both of these variables are significant and have a positive effect on stock market participation, controlling for risk aversion, wealth, age, education, and gender. Furthermore, risk aversion is found to have the largest effect on the probability of direct stock market participation. The analysis is conducted with a Probit model, and utilizes a sample composed of individuals fifty years of age and above.