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
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Online issN 2345-0037. 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.
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Appendix
Able 7. in es o su ey ques ions
Ques ion Scale
1. how would you assess you in es men knowl-
edge?
{Ve y good (i am a p o essional in es o ) / good /
A e age / Weak / Ve y weak}
2. Which inancial ins umen s do you in es in?
Deposi s / sha es (public) / bonds / eal es a e
(excl. you p ima y esidence) / in es men unds
/ Pension unds ( olun a y 3 d pilla ) / P i a e/
en u e capi al unds / li e insu ance / Al e na i e
in es men s
3–9. Wha e ec do hese ac o s ha e
in making you in es men decisions?
Pe sonal opinion / expe ience
Ad ice om iends / ela i es
Ad ice om inancial ad iso
expe commen a ies
specialized sou ces (e.g. bloombe g)
Mass media channels
in ui ion
{Ve y big / big / A e age / small / Ve y small}
10.a. 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