Stockholding in Europe

The 1990s witnessed significant increases in stock market participation by households, both in Europe and in the United States. This participation took the form both of direct involvement in stock market trading of individual stocks and of indirect stockholding through participation in managed investment accounts. By the end of the 1990s, 17.3 per cent of the households in five major European countries (France, Germany, Italy, the Netherlands, and the United Kingdom) were holding stocks directly. Direct participation was highest in the United Kingdom (27.9 per cent) and lowest in Italy (7.9 per cent), with values for France, Germany and the Netherlands in the 15–17 per cent range. Including indirect stockownership through mutual funds sets the overall stock market participation at 23 per cent for France, 15 per cent for Italy, 20 per cent for Germany, 33 per cent in the Netherlands, and almost 50 per cent in the United Kingdom and the United States.

This chapter presents recent developments in the theory of optimal portfolio design in a non-technical manner, provides the intuition behind these results, and uses them to interpret important findings in the empirical literature based on high-quality, household-level portfolio data. Where theoretical predictions are confirmed by empirical observation, theory provides a way to interpret empirical findings. Where the two disagree, the mechanisms stressed by theory serve as a first step towards identifying the full set of factors at work and the extent to which household behaviour can be modified to fit objectives better.

In this chapter, we explain why household survey data on wealth and portfolio choice should be of interest to the financial community. We argue that there are two major advantages in using household survey data. First, the investigator can distinguish between two potentially different decisions: the decision of whether to hold any stocks and the decision on how much to invest in this type of assets for given financial wealth. Second, the investigator is able to concentrate on demand for stocks by resident households, a well-defined and relatively homogenous group whose behaviour can be related to standard economic theory.

In France, like in other European countries, the past fifteen years has bee a time of drastic financial market developments due mainly to greater international integration and coordination (in response to European Union directives), financial liberalization (in particular the privatization of public services), and product innovation (especially the rise of retirement accounts — PEP — and life insurance). One of the most striking results has been the quick adjustment of households’ behaviours to this new financial context, especially through the increasing share of stocks in portfolios and the diffusion of retirement accounts. In the middle of the eighties, only some 7 per cent of French households owned stocks compared with around 17 per cent in 2000.¹ For life insurance and retirement accounts, the rate of ownership has gone up, over the same period, from around 30 per cent to around 47 per cent of households.

Germany is not a country of stockholders. Financial portfolios are still dominated by relatively safe assets, notably checking and savings accounts and domestic bonds, and by illiquid assets, mainly life insuranc policies.¹ In 1993, only 12 per cent of West Germans directly held stocks while almost two-thirds of West German households owned a whole life insurance policy and about one-third held domestic bonds. Private pension funds are still uncommon.

Historically, stockownership in Italy — as in other European countries — has not been widespread. Recently, however, there have been important developments in the composition of the portfolio of Italian households. The most significant changes are the increased participation in the equity market, the sharp increase in the share of stocks in the portfolio (held either directly or through mutual funds), and the parallel decline of transaction accounts and government bonds.

This chapter details the trends in (in) direct stockownership and in portfolio shares of different types of risky assets conditional upon ownership in the Netherlands over much of the past decade, and tries to identify some of the main driving forces of household investment behaviour. We use descriptive evidence from macro data sources to show overall trends in household sector portfolio composition. To identify the economic and demographic characteristics of the average household we use a recent micro data set that follows individual households over time. This CentER Savings Survey (CSS), administered in close cooperation with economists and other academics studying saving behaviour, is an extraordinary rich source of information that not only reflects the major trends in financial markets for the private household sector, but also allows inference on which household characteristics are associated with level and composition of financial portfolios

This chapter provides empirical evidence on the portfolios of UK households.¹ We give particular attention to holdings of stocks and shares and differentiate between direct holdings that can be self-traded and indirect holdings in unit trusts and mutual funds and in tax favoured personal equity plans (PEPs), and also holdings in private personal pension accounts. We argue that household portfolios in the United Kingdom share many features with those of other countries included in this analysis. Across households with different characteristics there are wide differences in ownership rates for stocks held directly and stocks held indirectly. But within the group of stockholders we find little evidence of systematic variations in the proportion of household wealth that is accounted for by stocks held either directly or in direct and indirect forms. Age, income and education are important factors in describing the level of financial wealth that households have, and the various assets that they hold.