Advertisement

The Review of Black Political Economy

, Volume 39, Issue 4, pp 403–425 | Cite as

Explaining the 2004 Decrease in Minority Stock Ownership

  • Ajamu C. LovingEmail author
  • Michael S. Finke
  • John R. Salter
Article
  • 104 Downloads

Abstract

Prior literature has examined minority stock market participation and found that it increased rapidly throughout the 1990’s and into the early 2000’s. However, in 2004 after stock prices had suffered decline, Black and Hispanic market participation fell off sharply. This paper uses the NLSY 79 a panel data set to examine whether the diminished likelihood of Black and Hispanic 2004 market participation is due to race or variation in cognitive ability and investor experience. We find that IQ and investor experience subsume all racial effects in the likelihood of 2004 market participation.

Keywords

Wealth Racial inequality Black wealth Minority stock ownership 

JEL Classification

G11 

References

  1. Altonji J, Doraszelski U. The role of permanent income and demographics in Black/White differences in wealth. J Hum Resour. 2005;40(1):1–30.Google Scholar
  2. Altonji J, Doraszelski U. "The Role of Permanent Income and Demographics in Black/White Differences in Wealth." Working paper no. 8473. Cambridge, Mass: NBER; 2001.Google Scholar
  3. Altonji J, Doraszelski U, and Segal L. “Black/White differences in wealth”, Economic Perspective (Federal Reserve Bank of Chicago), 2000:38–50.Google Scholar
  4. Ariel-Schwab, (2007) The Ariel-Schwab Black Paper; A Decade of Research on African American Wealth Building and Retirement Planning. October 2007.Google Scholar
  5. Bailey WB, Kumar A, and Ng D. Behavioral biases and mutual fund clienteles. AFA 2009 San Francisco Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1108163 2009.
  6. Barber BM, Odean T. Trading is hazardous to your wealth: The common stock investment performance of individual investors. J Finance. 2000;55(2):773–806.CrossRefGoogle Scholar
  7. Barber BM, Lee YT, Liu YJ, Odean T. Just how much do individual investors lose by trading? Review of Financial Studies. 2009;22(2):609–32.CrossRefGoogle Scholar
  8. Benjamin DJ, Brown S, and Shapiro J. Who is behavioral? : Cognitive Ability and Anomalous Preferences. Available at SSRN: http://ssrn.com/abstract=675264 2006.
  9. Blanchflower DG, Levine PB, Zimmerman DJ. Discrimination in the small-business credit market. Rev Econ Stat. 2003;85(4):930–43.CrossRefGoogle Scholar
  10. Blau F, Graham J. Black-White differences in wealth and asset composition. Q J Econ. 1990;105(2):321–39.CrossRefGoogle Scholar
  11. Charles K, Hurst E. The transition to home ownership and the black-white wealth gap. Rev Econ Stat. 2002;84(2):281–97.CrossRefGoogle Scholar
  12. Chiteji NS, Stafford FP. Portfolio choices of parents and their children as young adults: Asset accumulation by African-American Families. Am Econ Rev. 1999;89(2):377–80.CrossRefGoogle Scholar
  13. Christelis D, Jappelli T, and Padula M. “Cognitive Abilities and Portfolio Choice.” Working paper, September 2008 draft 2008.Google Scholar
  14. Coleman S. Risk tolerance and the investment behavior of black and Hispanic heads of household. Financial Counseling and Planning. 2003;14(2):43–52.Google Scholar
  15. Cornwell EY, and Cornwell B. Access to expertise as a form of social capital: An examination of race- and class-based disparities in network ties to experts. Sociological Perspectives. Forthcoming 2009.Google Scholar
  16. Dhar R, and Ning Z. Up, close and personal: An individual level analysis of the disposition effect, Management Science Forthcoming 2006.Google Scholar
  17. Dietz RD, Haurin DR. The social and private micro-level consequences of homeownership. Journal of Urban Economics. 2003;54(3):401–50.CrossRefGoogle Scholar
  18. Feng L, Seasholes MS. Do investor sophistication and trading experience eliminate behavioral biases in financial markets? Review of Finance. 2005;9:305–51.CrossRefGoogle Scholar
  19. Fraser S. The bell curve wars Race, intelligence, and the future of America. Harper Collins: Scranton Pa; 1995.Google Scholar
  20. Frederick S. Cognitive reflection and decision making. J Econ Perspect. 2005;19(4):25–42.CrossRefGoogle Scholar
  21. Friesen GC, Sapp T. Mutual fund flows and investor returns: An empirical examination of fund investor timing ability. Journal of Banking & Finance. 2007;31(9):2796–816.CrossRefGoogle Scholar
  22. Gittleman M, Wolff EN. Racial Differences in patterns of wealth accumulation. Journal of Human Resources. 2004;4(XXXIX):193–227.Google Scholar
  23. Goetzmann WN, and Kumar A. Why do individual investors hold underdiversified portfolios?, Working Paper (November), University of Texas at Austin and Yale International Center of Finance 2005.Google Scholar
  24. Gutter MS, Fontes A. Racial differences in risky asset ownership: A two-stage model of the investment decision making process. Financial Counseling and Planning. 2006;17(2):64–78.Google Scholar
  25. Gutter MS, Fox J, Montalto CP. Racial differences in investor decision making. Financial Services Review. 1999;8(3):149–62.CrossRefGoogle Scholar
  26. Haliassos M, Bertaut CC. Why do so few hold stocks? Econ J. 1995;105:1110–29.CrossRefGoogle Scholar
  27. Hanna SD, Lindamood S. The decrease in stock ownership by minority households. Journal of Financial Counseling and Planning. 2008;19(2):46–58.Google Scholar
  28. Harrington SE, Niehaus G. Race, redlining, and automobile insurance prices the. J Bus. 1998;71(3):439–69.CrossRefGoogle Scholar
  29. Hartog J, Oosterbeek H. Health, wealth and happiness: Why pursue a higher education? Econ Educ Rev. 1998;17(3):245–56.CrossRefGoogle Scholar
  30. Hong H, Kubik JD, Stein JC. Social interaction and stock-market participation. J Finance. 2004;59(1):137–63.CrossRefGoogle Scholar
  31. Hurst E, Lusardi A. Liquidity constraints, household wealth, and entrepreneurship. J Polit Econ. 2004;112(2):319–47.CrossRefGoogle Scholar
  32. Johnson RW, Sambamoorthi U. Stephen Crystal gender differences in pension wealth: Estimates using provider data GSA. Gerontologist. 1999;39:320–33.CrossRefGoogle Scholar
  33. Korniotis G, and Kumar A. “Does investment skill decline due to cognitive aging or improve with experience?” Working paper, July 2007 draft 2007.Google Scholar
  34. List JA. Does market experience eliminate market anomalies? Q J Econ. 2003;118:41–71.CrossRefGoogle Scholar
  35. Long JE, and Caudill SB. Racial differences in home ownership and housing wealth, economic inquiry 1970–1986; 2007. p. 83–100.Google Scholar
  36. Menchik PL, Jianakoplos NA. Black white wealth inequality: Is inheritance the reason. Econ Inq. 1997;35(2):428–42.CrossRefGoogle Scholar
  37. Montagu A. Race and IQ. New York: Oxford University Press; 1999.Google Scholar
  38. Myers SL, Chan T. Racial discrimination in housing markets: Accounting for credit risk. Soc Sci Q. 1995;76(3):543–61.Google Scholar
  39. Oliver ML, Shapiro TM. Black Wealth/White Wealth: a new perspective on racial inequality. New York: Routledge; 1997.Google Scholar
  40. Parker A, Fischhoff B. Decision-making competence: External validation through an individual-differences approach. J Behav Decis Mak. 2005;18:1–27.CrossRefGoogle Scholar
  41. Plath DA, Stevenson T. Financial services and the African American market: What every financial planner should know. Financial Services Review. 2000;94:343–59.Google Scholar
  42. Smith JD. "White Wealth and Black People: The Distribution of Wealth in Washington, D.C. in 1967," in The Personal Distribution of Income and Wealth, edited by James. D. Smith New York : Columbia University Press, 1975 p. 321–63.Google Scholar
  43. Stevenson TH, Plath DA. Marketing financial services to the African American consumer: A comparative analyss of investment portfolio consumption. Calif Manag Rev. 2002;11(4):39–64.CrossRefGoogle Scholar
  44. Sundén AE, and Surette BJ. Gender Differences in the Allocation of Assets in Retirement Savings Plans The American Economic Review, Vol. 88, No. 2, Papers and Proceedings of the Hundred and Tenth Annual Meeting of the American Economic Association (May, 1998), 1998 p. 207–211Google Scholar
  45. Terrell HS. "Wealth Accumulation of Black and White Families: The Empirical Evidence." Journal of Finance, May 1971, 363–77.Google Scholar
  46. Vissing-Jorgensen A. Perspectives on behavioral finance: does “irrationality” disappear with wealth? Evidence from expectations and actions. In: Gertler M, Rogoff K, editors. NBER Macroeconomics annual. Cambridge MA: MIT Press; 2003.Google Scholar
  47. Waite LJ. Does Marriage Matter? Demography, 1995;32(4):483–507 http://www.jstor.org/stable/2061670.
  48. Whetzel D, McDaniel M. Prediction of national wealth. Intelligence. 2006;34(5):44–458.CrossRefGoogle Scholar
  49. Wilmoth J, Koso G. Does marital history matter? Marital status and wealth outcomes among preretirement adults. Journal of Marriage and the Family. 2002;64(1):254–68.CrossRefGoogle Scholar
  50. Wolff EN. Recent Trends in the Size Distribution of Household Wealth. J Econ Perspect. 1998;12(3):131–50.CrossRefGoogle Scholar
  51. Yao R, Gutter MS, Hanna SD. The financial risk tolerance of Blacks, Hispanics, and Whites. Financial Counseling and Planning. 2005;16(1):51–62.Google Scholar
  52. Zagorsky JL. Do you have to be smart to be rich? The impact of IQ on wealth, income, and financial distress. Intelligence. 2007. doi: 10.1016/j.intell.2007.02.003.
  53. Zagorsky JL. Marriage and divorce’s impact on wealth. J Sociol. 2005;41(4):406–24. doi: 10.1177/1440783305058478.CrossRefGoogle Scholar
  54. Zagorsky JL. Young baby boomers' wealth. Review of Income and Wealth. 1999;45:135–56.CrossRefGoogle Scholar

Copyright information

© Springer Science + Business Media, LLC 2012

Authors and Affiliations

  • Ajamu C. Loving
    • 1
    Email author
  • Michael S. Finke
    • 2
  • John R. Salter
    • 3
  1. 1.Texas A&M University –CommerceCommerceUSA
  2. 2.Texas Tech UniversityLubbockUSA
  3. 3.Texas Tech UniversityLubbockUSA

Personalised recommendations