A New Participation Puzzle: Public Equity Ownership Through the Financial Crisis

Using the Survey of Consumer Finances, I document a new puzzle in household portfolio choice characterized by two phenomena. First, intertemporal changes in the distribution of wealth resulted in a decrease in public equity ownership after, but not during, the financial crisis. Second, holding fixed the level of wealth over time, the participation rate temporarily increased during the crisis, then returned to pre-crisis levels. I show that these results can be explained by, and serve as strong evidence for, decreasing relative risk aversion and portfolio inertia. I discuss implications of these findings for existing models of participation, including fixed costs and background risks.