Skip to main content
SpringerLink
Log in

Explaining the 2004 Decrease in Minority Stock Ownership

The Review of Black Political Economy volume 39, pages 403–425 (2012)Cite this article

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.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Notes

  1. Calculated by subtracting 1 from the log likelihood ratio.

References

  • 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 

  • 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 

  • Altonji J, Doraszelski U, and Segal L. “Black/White differences in wealth”, Economic Perspective (Federal Reserve Bank of Chicago), 2000:38–50.

  • Ariel-Schwab, (2007) The Ariel-Schwab Black Paper; A Decade of Research on African American Wealth Building and Retirement Planning. October 2007.

  • 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.

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Benjamin DJ, Brown S, and Shapiro J. Who is behavioral? : Cognitive Ability and Anomalous Preferences. Available at SSRN: http://ssrn.com/abstract=675264 2006.

  • Blanchflower DG, Levine PB, Zimmerman DJ. Discrimination in the small-business credit market. Rev Econ Stat. 2003;85(4):930–43.

    Article  Google Scholar 

  • Blau F, Graham J. Black-White differences in wealth and asset composition. Q J Econ. 1990;105(2):321–39.

    Article  Google Scholar 

  • Charles K, Hurst E. The transition to home ownership and the black-white wealth gap. Rev Econ Stat. 2002;84(2):281–97.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Christelis D, Jappelli T, and Padula M. “Cognitive Abilities and Portfolio Choice.” Working paper, September 2008 draft 2008.

  • 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 

  • 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.

  • Dhar R, and Ning Z. Up, close and personal: An individual level analysis of the disposition effect, Management Science Forthcoming 2006.

  • Dietz RD, Haurin DR. The social and private micro-level consequences of homeownership. Journal of Urban Economics. 2003;54(3):401–50.

    Article  Google Scholar 

  • Feng L, Seasholes MS. Do investor sophistication and trading experience eliminate behavioral biases in financial markets? Review of Finance. 2005;9:305–51.

    Article  Google Scholar 

  • Fraser S. The bell curve wars Race, intelligence, and the future of America. Harper Collins: Scranton Pa; 1995.

    Google Scholar 

  • Frederick S. Cognitive reflection and decision making. J Econ Perspect. 2005;19(4):25–42.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Gittleman M, Wolff EN. Racial Differences in patterns of wealth accumulation. Journal of Human Resources. 2004;4(XXXIX):193–227.

    Google Scholar 

  • 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.

  • 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 

  • Gutter MS, Fox J, Montalto CP. Racial differences in investor decision making. Financial Services Review. 1999;8(3):149–62.

    Article  Google Scholar 

  • Haliassos M, Bertaut CC. Why do so few hold stocks? Econ J. 1995;105:1110–29.

    Article  Google Scholar 

  • 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 

  • Harrington SE, Niehaus G. Race, redlining, and automobile insurance prices the. J Bus. 1998;71(3):439–69.

    Article  Google Scholar 

  • Hartog J, Oosterbeek H. Health, wealth and happiness: Why pursue a higher education? Econ Educ Rev. 1998;17(3):245–56.

    Article  Google Scholar 

  • Hong H, Kubik JD, Stein JC. Social interaction and stock-market participation. J Finance. 2004;59(1):137–63.

    Article  Google Scholar 

  • Hurst E, Lusardi A. Liquidity constraints, household wealth, and entrepreneurship. J Polit Econ. 2004;112(2):319–47.

    Article  Google Scholar 

  • Johnson RW, Sambamoorthi U. Stephen Crystal gender differences in pension wealth: Estimates using provider data GSA. Gerontologist. 1999;39:320–33.

    Article  Google Scholar 

  • Korniotis G, and Kumar A. “Does investment skill decline due to cognitive aging or improve with experience?” Working paper, July 2007 draft 2007.

  • List JA. Does market experience eliminate market anomalies? Q J Econ. 2003;118:41–71.

    Article  Google Scholar 

  • Long JE, and Caudill SB. Racial differences in home ownership and housing wealth, economic inquiry 1970–1986; 2007. p. 83–100.

  • Menchik PL, Jianakoplos NA. Black white wealth inequality: Is inheritance the reason. Econ Inq. 1997;35(2):428–42.

    Article  Google Scholar 

  • Montagu A. Race and IQ. New York: Oxford University Press; 1999.

    Google Scholar 

  • Myers SL, Chan T. Racial discrimination in housing markets: Accounting for credit risk. Soc Sci Q. 1995;76(3):543–61.

    Google Scholar 

  • Oliver ML, Shapiro TM. Black Wealth/White Wealth: a new perspective on racial inequality. New York: Routledge; 1997.

    Google Scholar 

  • Parker A, Fischhoff B. Decision-making competence: External validation through an individual-differences approach. J Behav Decis Mak. 2005;18:1–27.

    Article  Google Scholar 

  • 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 

  • 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.

  • 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.

    Article  Google Scholar 

  • 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. 207–211

  • Terrell HS. "Wealth Accumulation of Black and White Families: The Empirical Evidence." Journal of Finance, May 1971, 363–77.

  • 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 

  • Waite LJ. Does Marriage Matter? Demography, 1995;32(4):483–507 http://www.jstor.org/stable/2061670.

  • Whetzel D, McDaniel M. Prediction of national wealth. Intelligence. 2006;34(5):44–458.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Wolff EN. Recent Trends in the Size Distribution of Household Wealth. J Econ Perspect. 1998;12(3):131–50.

    Article  Google Scholar 

  • 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 

  • 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.

  • Zagorsky JL. Marriage and divorce’s impact on wealth. J Sociol. 2005;41(4):406–24. doi:10.1177/1440783305058478.

    Article  Google Scholar 

  • Zagorsky JL. Young baby boomers' wealth. Review of Income and Wealth. 1999;45:135–56.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Texas A&M University –Commerce, 2600 Neal St., P.O. Box 3011, Commerce, TX, 75429, USA

    Ajamu C. Loving

  2. Texas Tech University, 2500 Broadway, Lubbock, TX, 79409, USA

    Michael S. Finke

  3. Texas Tech University, 2500 Broadway, Lubbock, TX, 79409, USA

    John R. Salter

Authors
  1. Ajamu C. Loving
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Michael S. Finke
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. John R. Salter
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ajamu C. Loving.

About this article

Cite this article

Loving, A.C., Finke, M.S. & Salter, J.R. Explaining the 2004 Decrease in Minority Stock Ownership. Rev Black Polit Econ 39, 403–425 (2012). https://doi.org/10.1007/s12114-012-9132-8

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12114-012-9132-8

Keywords

JEL Classification

search

Navigation