Ownership of Stocks and Mutual Funds: A Panel Data Analysis

In many industrial countries, ownership rates of risky assets have risen substantially over the past decade. This trend has potentially wide–ranging implications for the intertemporal and cross–sectional allocation of risk, and for the macro economy, establishing the need for understanding ownership dynamics at the micro level. This paper offers one of the first such analyses using representative panel survey data. We focus on the two main types of risky financial assets, mutual funds and individual stocks. We extend existing univariate dynamic binary choice models to the multivariate case and take account of interactions between the two types of assets. The models are estimated on data from the 1993–1998 waves of the Dutch CentER Savings Survey. We find that both unobserved heterogeneity and state dependence play a large role for both types of assets. Most of the positive relation between ownership of mutual funds in one period and ownership of individual stocks in the next period or vice versa, is explained by unobserved heterogeneity: if we account for correlation between the household specific effects in the two binary choice equations, we find a negative effect of lagged ownership of stocks on the ownership of mutual funds. These findings can be explained by adjustment costs that make it optimal to stick to one type of asset.