Investing in the stock market is seen to have numerous potential benefits for households, including: possible higher returns on investment; lower risk through more diversification; and some protection against inflation. These advantages are potentially important for long-term financial well-being and retirement planning. However, there may be excessive barriers to households investing in stocks, which may prevent people from reaping these potential rewards. In addition, households’ willingness to invest in the stock market can be revealing about their attitudes to financial risk-taking. Understanding these preferences is critically important when building models of the business cycle, in order to accurately capture the transmission of financial shocks.
12 June 2024