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Journal of Financial Economics

Windfall Gains and Stock Market Participation

Journal Article
Briggs, Joseph, David Cesarini, Erik Lindqvist and Robert Östling (2021). “Windfall Gains and Stock Market Participation”. Journal of Financial Economics 139(1), 57–83.

Joseph Briggs, David Cesarini, Erik Lindqvist, Robert Östling

We exploit the randomized assignment of lottery prizes in a large administrative Swedish data set to estimate the causal effect of wealth on stock market participation. A $150,000 windfall gain increases the stock market participation probability by 12 percentage points among prelottery nonparticipants but has no discernible effect on prelottery stock owners. A structural life cycle model significantly overpredicts entry rates even for very high entry costs (up to $31,000). Additional analyses implicate pessimistic beliefs regarding equity returns as a major source of this overprediction and suggest that both recent and early-life return realizations affect beliefs.