Stock market participation puzzle in emerging economies: The case of lithuania

Mau icas, Žygiman as; Da šku ienė, Valdonė; Ma iniče ai ė, Tama a A icle S ock ma ke pa icipa ion puzzle in eme ging economies: The case o li huania O ganiza ions and Ma ke s in Eme ging Economies P o ided in Coope a ion wi h: Facul y o Economics and Business Adminis a ion, Vilnius Uni e si y Sugges ed Ci a ion: Mau icas, Žygiman as; Da šku ienė, Valdonė; Ma iniče ai ė, Tama a (2017) : S ock ma ke pa icipa ion puzzle in eme ging economies: The case o li huania, O ganiza ions and Ma ke s in Eme ging Economies, ISSN 2345-0037, Vilnius Uni e si y P ess, Vilnius, Vol. 8, Iss. 2, pp. 225-243, h ps://doi.o g/10.15388/omee.2017.8.2.14190 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/317128 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. 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O gANiZA iONs AND MA ke s iN eMe giNg eCONOMies, 2017, VOl. 8, No. 2(16) S oCK Ma KE pa iCipa ioN pUzzlE iN EME GiNG ECoNoMiES: HE CaSE oF li HUaNia Žygiman as Mau icas* ISM Uni e si y o Managemen and Economics, Li huania p o . d . Valdonė da šku ienė ISM Uni e si y o Managemen and Economics, Li huania ama a Ma iniče ai ė ISM Uni e si y o Managemen and Economics, Li huania Abs ac . We examine unde lying ac o s ha explain an excep ionally low s ock ma ke pa icipa ion a e among Li huanian households by ca ying ou a comp ehensi e su ey o mass a luen indi idu- als. The p obi eg ession analysis o he su ey esul s indica es ha lack o inancial li e acy, low isk ole ance and lack o us in inancial ins i u ions a e he h ee key ac o s explaining he s ock ma ke pa icipa ion puzzle in Li huania, while high in es men ees, high s ock ma ke e u n expec a ions o unde de eloped local capi al ma ke s do no ha e a signi ican e ec . The pape also examines whe he he same ac o s also ha e in luence on in es men und, bond and eal es a e ma ke pa icipa ion a es. In e es ingly, lack o inancial li e acy, low isk ole ance, lack o us in inancial ins i u ions and high s ock ma ke e u n expec a ions inc ease household pa icipa ion a e in eal es a e ma ke . The la e inding should be o pa icula in e es o mac o-p uden ial policy make s as inc easing inancial li e acy o households and inc easing us in inancial in e media ies would likely cause highe s ock ma ke pa icipa ion a he expense o in es men s in local eal es a e ma ke hus no only imp o ing household po olio di e si ica ion and liquidi y, bu also po en ially mi iga ing local eal es a e boom and bus cycles. Key wo ds: s ock ma ke pa icipa ion puzzle, us , inancial li e acy, isk ole ance, eal es a e JEL Classi ica ion: G02, G11, G14, G15, G18 in oduc ion global s ock ma ke is expe iencing a s ong pos -c isis eco e y wi h F se All Wo ld index s anding a all- ime eco d high le els ollowing an imp essi e 150% inc ease since 2009. in es men und indus y is also expe iencing a pos -c isis boom wi h * Co esponding au ho : isM uNiVe si y OF MANAgeMeN AND eCONOMiCs, A kliu s . 18, Vilnius, l -01305, li huania, phone: +370 612 66291 e-mail: [email p o ec ed] 226 eco d-high sales o in es men unds eco ded in eu ope in 2015 (eFAMA, 2015). howe e , despi e an imp essi e s ock ma ke pe o mance in ecen yea s and ample e idence ha in he long- e m in es men s in s ocks ea n posi i e equi y p emium (Meh a & P esco , 2003), only a small ac ion o households in eme ging economies in gene al, and li huania – in pa icula , in es di ec ly in s ock ma ke o hold in es - men uni s wi h in es men unds. ins ead, households p e e holding hei sa ings in cash o low-in e es -ea ning bank deposi s. low s ock ma ke pa icipa ion a e no only ansla es in o slowe weal h accumu- la ion and loss o pu chasing powe o households, bu also b ings g ea challenges o inancial se ice indus y in gene al and in es men managemen indus y in pa icula . Du ing he las se en yea s ne wo h o li huanian households almos doubled ising om eu 14.0 billion in 2009 o eu 24.7 billion in 2016 (eCb, 2016). ye , majo i y o his weal h is being held in cash and bank deposi s o in es ed in eal es a e (o he han household main esidence, hence o h: hM ) wi h only a small ac ion in es ed in s ocks, in es men unds1 o o he inancial asse s. This inhibi s he de elopmen o he mode n inancial sys em and limi s he e icien alloca ion o capi al. Ne e heless, i also signals g ea oppo uni y: i s ock ma ke pa - icipa ion a e we e o con e ge o he eu ozone-a e age le els, he po en ial o inan- cial se ice indus y g ow h would be subs an ial. howe e , o make easonable p edic- ions one needs o iden i y unde lying ac o s causing low s ock ma ke pa icipa ion. Able 1. Household pa icipa ion a e in inancial asse s and in eal es a e deposi s in es men unds S ocks bonds eal es a e (o he han HM ) eu o zone a e age 96.9 9.4 8.8 4.6 24.1 li huania* 53.8 1.3 1.3 0.8 36.0 la ia 78.5 0.1 0.8 0.3 39.1 es onia 98.6 3.2 3.6 0.1 32.0 Poland 82.8 4.2 3.5 1.0 18.9 slo akia 88.2 2.0 2.1 0.3 19.4 slo enia 93.3 5.6 8.0 0.7 30.6 hunga y 81.1 7.4 1.3 7.3 23.0 Sou ce: The Household Finance and Consump ion Su ey: esul s om he second wa e (ECB, 2016) * Li huania was no included in he su ey, hence da a (no ully compa able) is p esen ed om he Su ey o he Financial Beha iou o Households (Bank o Li huania, 2016) A numbe o a emp s ha e been made o explain an obse ed phenomenon o house- hold unde in es men in s ock ma ke . ye , o his da e, he e is no common ag eemen as o which ac o s bes explain his phenomenon and hence o his day i s ill emains a puzzle colloquially called “ he s ock ma ke pa icipa ion puzzle” (Mankiw & Zeldes, 1 in li huania asse s unde managemen pe capi a a e he lowes in he eu ozone – mo e han 200 imes lowe han he eu ozone a e age (bank o li huania, 2016) 227 1991). in addi ion, p e ious esea ch mainly ocused on explaining he phenomenon in de eloped coun ies and, o he au ho s’ knowledge, he e ha e no been a comp ehen- si e esea ch ca ied ou o examine he s ock ma ke pa icipa ion puzzle in li huania and o he bal ic s a es. The case o li huania (and bal ic s a es in gene al) is o gene al in e es due o he ollowing easons: 1. li huanian households ha e subs an ially lowe s ock ma ke pa icipa ion a e compa ed o he eu ozone a e age. 2. li huanian households also ha e subs an ially lowe in es men und and bond ma ke pa icipa ion a es compa ed o he eu ozone a e age. 3. ye , eal es a e pa icipa ion a e (o he han hM ) o li huanian households is highe han he eu ozone a e age. 4. simila endencies a e obse ed in o he bal ic and Cee eu ope coun ies, sug- ges ing ha indings abou li huanian households could be gene alized mo e b oadly. The pape a emp s o ill he a o emen ioned gaps in he exis ing esea ch and ex- amine he key ac o s explaining excep ionally low s ock ma ke pa icipa ion a e in li huania. The aim o he pape is o design and es ima e an econome ic model, ex- plaining he s ock ma ke pa icipa ion puzzle in li huania. The key objec i es o his pape a e as ollows. Fi s , o pe o m an in-dep h analy- sis o he exis ing li e a u e examining he s ock ma ke pa icipa ion puzzle phenom- enon. second, o iden i y key ac o s explaining he s ock ma ke pa icipa ion puzzle. Thi d, o ca y ou an in es o su ey examining he impac o each o he iden i ied explana o y ac o s. Fou h, o design and es ima e he econome ic model aimed a es ing which ac o s explain he s ock ma ke pa icipa ion puzzle in li huania. Fi h, o design and es ima e he econome ic model aimed a iden i ying ac o s explaining low pa icipa ion a e in in es men unds and bonds and high pa icipa ion a e in he eal es a e ma ke . Finally, o p o ide conclusions and ecommenda ions o in es men indus y and policy make s bo h in li huania and Cee egion o e all. The pape is s uc u ed as ollows. The i s pa p esen s a concise o e iew o he cu en body o esea ch aimed a explaining “ he s ock ma ke pa icipa ion puzzle”. The second pa p esen s esul s o in es o su ey ca ied ou in li huania aimed a analyzing key ac o s explaining he “s ock ma ke pa icipa ion puzzle” phenomenon. The hi d pa p esen s key indings ollowed by discussion. Finally, conclusions a e made and ec- ommenda ions o inc ease s ock ma ke pa icipa ion a e in li huania a e p o ided. 1. S ock ma ke pa icipa ion puzzle The canonical Po olio Model (Ma kowi z, 1952) implies ha all households should be holding some pa o hei in es men s in isky secu i ies unless hey a e in ini ely isk a e se and/o expec ed equi y isk p emium is no p esen in he ma ke (i.e. excess 228 e u n o e he isk- ee asse is ze o o nega i e). howe e , empi ical e idence sugges s ha in he long- e m in es men s in s ocks ea n posi i e equi y p emium (Meh a & P esco , 2003) and in es o s do no ha e un easonably high le el o isk a e sion. And ye indi iduals a e unde in es ing in s ocks in gene al and in es men unds in pa icu- la (guiso e al., 2003). This phenomenon is named as “ he s ock ma ke pa icipa ion puzzle” (Mankiw & Zeldes, 1991). lee e al. (2015) analysed he e ec o in es o ’s isk a e sion and e u n expec a- ions on s ock ma ke pa icipa ion a e using he Du ch household su ey da a. They ound, as expec ed, ha highe isk a e sion, ce e is pa ibus, dec eases pa icipa ion in s ock ma ke s, while highe e u n expec a ions, ce e is pa ibus, ha e posi i e e ec on s ock ma ke pa icipa ion. They also analysed he join e ec o he wo ac o s and ound ha highe isk a e sion is ela ed o lowe e u n expec a ions. hu d e al. (2009) also ound a posi i e ela ionship be ween e u n expec a ions and s ock ma - ke pa icipa ion, while A ondel e al. (2014) disco e ed ha s ock ma ke pa icipa- ion posi i ely co ela es no only wi h in es o ’s in o ma ion abou expec ed e u ns, bu also wi h pas ealized e u ns. These indings a e in line wi h he Mode n Po olio Theo y, bu hese ac o s alone a e unable o explain he puzzle. hence, he e is a body o li e a u e analysing o he ac o s which a ec s ock ma - ke pa icipa ion. Dimmock (2005) analysed he e ec o loss a e sion (kahneman & e sky, 1979) ins ead o isk a e sion and ound ha loss a e sion has a e y s ong nega i e e ec on s ock ma ke pa icipa ion, bu no as s ong on in es men und ma ke pa icipa ion. lee and Veld-Me koulo a (2016) analysed he e ec o myopic loss a e sion (i.e. a e sion o sho - e m losses) and ound signi ican nega i e ela ion- ship wi h s ock ma ke pa icipa ion. Cao e al. (2005) sugges ha unce ain y dispe - sion among in es o s may explain low s ock ma ke pa icipa ion a e, while Ang e al. (2005) use he concep o disappoin men a e sion p oposed by gul (1991) o es s ock ma ke pa icipa ion and ind a posi i e ela ionship. Ano he body o esea ch analyses he e ec o inancial li e acy on s ock ma ke pa icipa ion. since in es ing in s ock ma ke in ol es judgemen , in es o s a e mo e willing o make hem once hey ha e o hey eel ha hey ha e he needed in es men knowledge (hea h & e sky, 1991). Fo example, Van ooij e al. (2011) used he Du ch household su ey da a o ind a signi ican posi i e ela ionship be ween s ock ma ke pa icipa ion and inancial li e acy. using he da a om Finland, g inbla e al. (2011) ound ha high-iq indi iduals a e mo e likely o in es in s ocks and mu ual unds and ea n highe e u ns. Xia e al. (2014) p oposed an idea ha i is no inancial li e acy pe se, bu a he inancial li e acy o e con idence ha inc eases s ock ma ke pa icipa ion. The au ho s ound a posi i e ela ionship be ween o e con idence and s ock ma ke in es men using da a o he Chinese su ey o Consume Finance. simi- la ly, g inbla and keloha ju (2009) disco e ed ha o e con idence and sensa ion seeking inc eases s ock ma ke pa icipa ion. 229 Von gaudecke (2015) analysed he link be ween inancial li e acy and po olio di e si ica ion using he Du ch household da a. The esea ch e ealed ha households wi h inancial li e acy below median and no using p o essional inancial ad ice end o unde -di e si y hei po olios, which esul s in lowe long- e m e u ns. simila ly, guiso and Jappelli (2005) used he da a om he bank o i aly su eys o household income and Weal h and ound ha lack o awa eness abou oppo uni ies o in es in s ocks and in es men unds limi s pa icipa ion a e. Ano he impo an ac o encou aging s ock ma ke pa icipa ion is household weal h (guiso e al., 2003). The eu osys em household inance and consump ion su - eys (eCb, 2013, eCb 2016) indica es ha income, ne weal h and educa ion ha e signi ican e ec on s ock ma ke pa icipa ion. As much as 23.1% o households in he uppe ne weal h pe cen ile in es in s ocks compa ed o a me e 0.7% o households in he lowes pe cen ile. Ves man (2010) analyzed he da a o he usA and sweden and showed ha home owne s ha e highe s ock ma ke pa icipa ion a e han en e s. likewise, 17.9% o esponden s ha ing e ia y educa ion in es in s ock ma ke com- pa ed o a me e 3.2% wi h basic educa ion. s ock pa icipa ion inc eases g adually wi h age, wi h 16–34-yea -olds ha ing wice lowe s ock ma ke pa icipa ion compa ed o 45–74-yea -olds. howe e , olde people a e gene ally weal hie , hence when con olled o weal h le el, he age ac o is gene ally ound o be insigni ican (Fujuki e al., 2012). b iggs e al. (2015) analysed he e ec o weal h on s ock ma ke pa icipa ion using he da abase o swedish lo e y-winne s. The au ho s ound a posi i e ela ionship be- ween s ock ma ke pa icipa ion and winning he lo e y (i.e. he winne s who had no pa icipa ed, s a ed pa icipa ing). A numbe o esea che s examined he impo ance o us ac o on s ock ma ke de- elopmen . guiso e al. (2005) analysed he e ec o us on s ock ma ke pa icipa ion. They ound ha us ac o explains he lack o s ock ma ke pa icipa ion a he indi idual as well as he coun y-wide le el. speci ically, hey showed ha lack o us explains why ce ain weal hy us in es o s unde in es in s ocks and why ce ain coun ies wi h lowe us (e.g. i aly) ha e lowe le el o s ock ma ke pa icipa ion compa ed o hose ha ha e highe us (e.g. sweden o he usA). simila ly, (Asgha ian e al., 2014) analysed he e ec o ins i u ional quali y on us and he e ec o us on s ock ma ke pa icipa- ion using he household le el-da a o 14 eu opean coun ies ( wo Cee coun ies among hem, namely Poland and Czech epublic). They iden i ied a signi ican posi i e ela ion- ship be ween ins i u ional quali y and us on he one hand, and us and s ock ma ke pa icipa ion on he o he . geo ga akos and Pasini (2009) ound ha us and sociabil- i y ha e s ong and dis inc e ec on s ock ma ke pa icipa ion (e.g. i aly and spain a e low us coun ies). gianne i and Wang (2015) showed ha households om he usA s a es wi h mo e equen cases o co po a e aud ha e lowe s ock ma ke pa icipa ion. The usage o inancial ad iso se ices also p o ed o be inc easing s ock ma ke pa icipa ion (geo ga akos & inde s , 2014) – especially among households wi h less inancial knowledge, i.e. inancial ad iso s compensa e he lack o inancial knowledge. 230 F aile and eh mann (2014) examined he e ec o mac oeconomic expe iences on households’ willingness o ake on isks and in es in s ock ma ke . The au ho s e- ealed ha ecen posi i e expe iences (e.g. he pe iod o bull ma ke ) co ela ed posi- i ely wi h willingness o pa icipa e in he s ock ma ke , while nega i e expe iences (e.g. inancial ma ke c ash) – espec i ely educed he willingness. bogan (2008) demons a ed ha he usage o in e ne has a posi i e e ec on he s ock ma ke pa icipa ion a e, while glase and kloss (2013) ound ha his ela ion- ship holds only among inancially li e a e households. The e is e y li le esea ch done o analyse he ela ionship be ween s ock-holding and holdings o o he asse s, o in es men s in eal es a e. Miguel (2013) ound ha s ock-holding in spanish households is posi i ely co ela ed wi h holdings o sa e inan- cial asse s (bonds) and nega i ely co ela ed wi h in es men s in eal es a e. Ch is elis e al. (2013) showed ha di e ences in economic en i onmen play an impo an ole in explaining decomposi ion o household in es men s, wi h us households in es ing mo e in s ocks and eu opean households mo e in eal es a e. e en ewe s udies ha e been ca ied ou abou eme ging ma ke s due o lack o eli- able da a, in e es o low ele ance. banyen and Nkuah (2015) analysed da a o ghana and ound ha s ock ma ke isk p emium and in es o s’ isk a e sion alone a e no able o explain excep ionally low s ock ma ke pa icipa ion a e. The au ho s iden i- ied ou addi ional ac o s ha explain he s ock ma ke pa icipa ion puzzle, namely awa eness, us , educa ion and he ding beha iou . Fouzia e al. (2012) ound simila Able 2. The lis o ac o s explaining he s ock ma ke pa icipa ion puzzle Fac o E ec e e ences isk a e sion o in es o Nega i e lee e al. (2015) e u n expec a ions Posi i e hu d e al. (2009) loss a e sion / myopic loss a e sion o in es o Nega i e Dimmock (2005), lee & Veld-Me koulo a (2016) Fixed en y cos s Nega i e Naudon & apia (2004) Financial li e acy / Financial li e acy o e con idence Posi i e Van ooij e al. (2011) / Xia e al. (2014) usage o inancial ad iso Posi i e geo ga akos & inde s (2014) Awa eness abou and access o in es - men oppo uni ies Posi i e guiso & Jappelli (2005) and kozak & sosyu a (2015) us Posi i e Dua e e al. (2010), guiso e al. (2005) Nega i e mac oeconomic expe iences Nega i e F aile & eh mann (2014) Mac oeconomic en i onmen Posi i e / nega i e Ch is elis e al. (2013) household weal h Posi i e b iggs e al. (2015) holdings o sa e inancial asse s Posi i e Miguel (2013) in es men s in eal es a e Nega i e Miguel (2013) Weal h/income inequali y Nega i e Fa ilukis (2013) iq o an in es o Posi i e g inbla e al. (2010) 231 ac o s in analysing low s ock owne ship in Pakis an, i.e., low awa eness, inancial li - e acy and social in e ac ion as well as high in o ma ional, pa icipa ion and en y cos s. able 2 lis s he key ac o s explaining he s ock ma ke pa icipa ion puzzle oge h- e wi h he es ima ed e ec . ha ing e iewed he key ac o s explaining he s ock ma ke pa icipa ion puzzle, he pape aims o answe he ollowing ques ions. Fi s , o es which o he a o emen- ioned ac o s explain low s ock ma ke pa icipa ion a e in li huania. second, o es which o he a o emen ioned ac o s a e also able o explain low in es men und and bond pa icipa ion a e in li huania. Thi d, o es which o he a o emen ioned ac o s could explain high household in es men s in eal es a e in li huania. 2. esea ch Me hods and da a The p ima y objec i e o his pa is o es which ac o s explain he s ock ma ke pa - icipa ion puzzle in li huania. Ano he objec i e is o es whe he hese ac o s could explain low household pa icipa ion a e in in es men unds and bonds ( he ea e : inancial asse s) as well as ela i ely high pa icipa ion a e in eal es a e. o achie e hese aims, i s a c oss-sec ional s udy using an online su ey was ca ied ou and hen p obi eg essions ollowing guiso e al. (2003) o s ock, in es men und, bond and eal es a e ma ke pa icipa ion we e es ima ed. Desc ip i e analysis and wo sample - es s we e used o assess uncondi ional e ec o selec ed ac o s on household pa ici- pa ion a e. The su ey was designed using apklausos.l online su ey pla o m and dis ibu ed o esponden s ia e-mail in o de o inc ease con enience, educe esponse ime (an a e age ime o ake he su ey was 7 minu es and 17 seconds) and inc ease esponse a e. The su ey included he o al o 18 su ey ques ions, selec ed on he ollowing wo c i e ia: 1) gene al ac o s iden i ied in p e ious esea ch ha migh explain he “s ock ma ke pa icipa ion puzzle” and 2) coun y-speci ic ques ions iden i ied du ing p e- su ey in e iews wi h selec ed in es men expe s. Fo example, inancial li e acy o esponden s was e alua ed by asking a closed-end i e-le el like - ype scale ques ion “please assess you in es men knowledge”, while loss a e sion was e alua ed by asking a closed-end ques ion wi h 21 possible answe op ions (would no ole a e any; up o 5%; up o 10%; up o 15% … up o 95%, up o 100%). likewise, s ock e u n expec a- ions o esponden s we e e alua ed by asking an open-ended ques ion “wha a e age annual e u n would you expec o ea n by in es ing in <usA / eu o zone> s ock index o e he nex 10 yea s?”). ques ions abou pa icipa ion in s ocks, in es men unds, bonds and eal es a e we e asked using a dicho omous scale. The comple e lis o ques- ions and hei a ing scales is p o ided in able 7 in he Appendix. The su ey esponden s we e no selec ed om he popula ion a la ge, bu ins ead we e selec ed om h ee sub-samples, ep esen ing weal hy indi iduals, ha ing means and being able o in es , namely 1) clien s o No dea Ma ke s li huania, 2) membe s 232 o li huanian o a y clubs and 3) alumni o bMi execu i e MbA. The i s sub-sample p ima ily co e s CeOs o CFOs o la ge and Medium li huanian co po a e compa- nies, co po a e clien s o No dea bank li huania. The second sub-se o esponden s p ima ily includes indi iduals ha ing su icien capaci y o in es in in es men o o he in es men p oduc s, and hey gene ally ep esen olde gene a ion2. Finally, he hi d sub-se o esponden s ep esen s younge gene a ion3 wi h high ea nings and high weal h-accumula ion po en ial. able 3 p esen s he concise desc ip ion o he su ey sample. Able 3. Su ey sample desc ip ion Numbe o esponden s Numbe o esponses esponse a e ime o answe (median, in sec.) No dea bank clien s 104 38 37% 469 o a y club membe s 171 35 20% 405 eMbA Alumni 83 41 49% 349 o al 358 114 32% 437 i was a delibe a e decision no o include popula ion a la ge in he sample in o - de o minimize non- esponse and pa icipa ion biases, gi en ha he su ey ques ions include he sensi i e ones abou he pe sonal inancial si ua ion, which a e p one o be unde epo ed. such na owing o he sample made i possible o exclude cul u ally sensi i e ques ions abou he le el o income/weal h o mos common lead ques ions (age, gende ), which u he inc eased he esponse a e. The a ge g oups we e chosen o ensu e ha he la ge majo i y o esponden s belong o a mass a luen middle-aged household ca ego y and ha a signi ican pa o hem do pa icipa e in s ock and o he ma ke s. indeed, he s ock ma ke pa icipa ion a e among esponden s was 31% as opposed o an es ima ed 1.3% o he popula ion as a whole. o he au ho s’ knowledge, he e ha e been no compa able su eys ca ied ou in li huania and only a hand ul o ela ed ones. Among hese he so called “su ey o li h- uanian in es o s” (li h.: lie u os in es uo ojų y imas) was ca ied ou by syne gy Fi- nance (2013). howe e , he su ey was aimed p ima ily a e alua ing he a ionali y o in es o beha io in gene al and no he inancial ma ke pa icipa ion speci ically. The bank o li huania also pe iodically (bi-annually) ca ies ou he su ey o he Financial beha iou o households (bank o li huania, 2016), which ocuses on sa ing and bo - owing habi s o li huanian households as well as sel -assessmen o inancial posi ion o li huanian households. i is also wo h men ioning “The eu osys em household 2 Minimum age o become a o a y membe is 30, wi h an a e age age anging a ound 50–60 yea s. 3 A e age age o he sub-sample is 30–40 yea s. 3 i also conduc ed se e al sensi i i y analyses. Fo example, i eplaced p o incial le el sub-indices o ins i u ional quali y wi h he agg ega ed index (PCi); o expo was excluded. howe e , quali a i ely simila esul s ha e been ob ained in all cases, and hey a e a ailable on eques . 239 men o domes ic inancial se ice sec o . hence, i is o c ucial impo ance o iden i y he unde lying ac o s ha a e capable o explaining he so-called s ock ma ke pa ici- pa ion puzzle. being awa e o hese ac o s, app op ia e policies could be designed by go e nmen agencies and inancial sec o playe s o inc ease he s ock ma ke pa icipa- ion among households in li huania and elsewhe e in he bal ic and Cee egion. The pape inds ha lack o inancial li e acy, low isk ole ance and lack o us in inancial ins i u ions a e he h ee key ac o s explaining low s ock ma ke pa icipa ion a e among li huanian households. i is no ewo hy ha exac ly hese h ee ac o s ex- plain high household pa icipa ion a e in local eal es a e ma ke , which should be o pa icula in e es o mac o-p uden ial policy make s as inc easing inancial li e acy o households and inc easing us in inancial in e media ies would likely cause highe s ock ma ke pa icipa ion a he expense o in es men s in local eal es a e ma ke hus no only imp o ing household po olio di e si ica ion and liquidi y, bu also po en- ially mi iga ing local eal es a e boom and bus cycles. The la e s a emen is suppo ed by he inding ha households’ s ock ma ke e- u n expec a ions do no ha e a signi ican e ec on di ec o indi ec ( ia in es men unds) s ock ma ke pa icipa ion. howe e , highe e u n expec a ions inc ease pa - icipa ion a e in domes ic eal es a e in es men s. Thus, up u n in global s ock ma ke indices would coincide no wi h highe in es men lows in o isky inancial asse s, bu a he in o local eal es a e ma ke . Ano he inding is ha he usage o inancial ad i- so inc eases di ec and indi ec s ock ma ke pa icipa ion a e – especially among less inancially sa y households. Thus, he ole o inancial ad iso s should no be dis e- ga ded, and e o s should be pu o inc ease c edibili y and us o inancial ad iso y se ice p o ide s. Finally, i is wo h men ioning ha li huanian households ha e e y low isk ole - ance and high dis us in inancial in e media ies, which may explain why an o e all le el o s ock ma ke pa icipa ion in li huania is among he lowes in eu ope. These indings wa an a mo e in-dep h pan-eu opean c oss-coun y s udy on he de e mi- nan s o low s ock ma ke pa icipa ion. e e ences Almenbe g, J.,& Widma k, O. (2011). Nume acy, inancial li e acy and pa icipa ion in asse ma - ke s. swedish Minis y o Finance: Mimeo. Ang, A., bekae , g., & liu, J.(2005). 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Wha a e age annual e u n would you expec o e he nex 10 yea s (2016–2026) by in es ing in US s ock index (S&p 500)? Open ques ion 10.b. Wha a e age annual e u n would you expec o e he nex 10 yea s (2016–2026) by in es ing in eu ozone s ock index (eu o s oxx 50)? Open ques ion 11. Wha would be he highes ole able annual all in you po olio? {Would no ole a e any loss / up o 5% / up o 10% / up o 15% / up o 20% / up o 25% / up o 30% / up o 40% / up o 50% / up o 60% / up o 70% / up o 80% / up o 90% / up o 100%} 12. Please indica e he size o an annual in es men managemen ee you would be willing o pay i you in es men s gene a ed a e age e u ns? (% om AuM) {0% / up o 0.5% / F om 0.5% up o 1.0% / F om 1.0% up o 1.5% / F om 1.5% up o 2.0% / F om 2.0% up o 2.5% / F om 2.5% up o 3.0% / F om 3.0% up o 3.5% / F om 3.5% up o 4.0% / F om 4.0% up o 4.5% / F om 4.5% up o 5.0% / Abo e 5%} 13. A e you using se ices o pe sonal in es men ad iso ? {yes / No / No, bu planning o use in he u u e} 14-18. in li huania gene a ed a me e 0.4% o households a e in es ing in s ocks, i.e. 25 imes lowe han eu-a e age. Wha e ec , in you opinion, do he below men ioned ac o s ha e on an excep ionally low in es men a e in s ocks in li huania? lack o us in inancial in e media ies lack o p o essionalism o inancial in e me dia ies unde de eloped local capi al ma ke gene al economic insecu i y inc easing demand o sa e ha en asse s (e.g. cash, deposi s) lessons om global inancial c isis {Ve y big / big / A e age / small / Ve y small} 243 Able 8. Co ela ion ma ix among p edic o a iables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Financial li e acy (sel - assessed) (1) 1.00 isk ole ance (2) 0.31 1.00 s ock ma ke e u n expec a ions (3) 0.04 0.12 1.00 high in es men ees (4) (0.25) 0.01 0.31 1.00 usage o inancial ad iso se ices (5) 0.48 0.14 0.09 0.04 1.00 lack o us in inancial in e media ies (6) 0.18 0.04 0.06 0.27 0.10 1.00 lack o p o essionalism o inancial in e media - ies (7) 0.47 (0.03) (0.15) (0.04) 0.00 0.47 1.00 unde de eloped domes- ic capi al ma ke (8) 0.11 0.16 0.44 0.32 0.09 0.27 0.17 1.00 O e all economic inse- cu i y inc easing demand o sa e-ha en asse s (9) (0.19) 0.04 0.05 0.21 (0.08) 0.01 (0.36) (0.01) 1.00 lessons lea ned du ing 2008–2009 inancial c isis (10) 0.02 (0.01) (0.08) 0.25 0.03 0.30 0.07 0.03 0.46 1.00 Able 9. wo sample - es : Expec ed s ock ma ke e u n Financial ma ke pa - icipa ion Numbe o esponden s (missing da a) Expec ed e u n S anda d de ia ion es s a is ics p- alue usA benchma k s ock ma ke index (e.g. s&P) yes No 52 (3) 52 (7) 8.19 8.85 6.46 8.70 -0.435 0.664434 eu ozone bench- ma k s ock ma ke index (e.g. eu O s OXX) yes No 52 (3) 52 (7) 6.14 8.42 5.05 8.62 -1.788 0.076737 Able 10. wo sample - es : isk ole ance (maximum ole a ed annual loss) pa icipa- ion Numbe o espon- den s Maximum ole - a ed annual loss (%) S anda d de ia ion es s a is ics p- alue in es men unds yes No 34 80 27.9 11.1 19.3 14.7 5.10 1.40682e-06 s ocks yes No 35 79 31.3 9.4 23.0 9.1 7.31 4.27649e-11 bonds yes No 27 87 26.9 12.8 22.5 14.9 3.78 0.0002487 All inancial asse s yes No 55 59 25.3 7.5 21.6 5.8 6.08 1.72887e-08 eal es a e only yes No 45 69 6.8 22.2 5.9 20.3 -4.94 1.9813718