Does it pay to invest? The personal equity risk premium and stock market participation

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)


Individuals’ stock market participation depends on the risk-return trade-off they expect to achieve. We find that the expected economic benefits of investing are highly heterogeneous. We define the personal equity risk premium (PERP) as the difference between an individual's expectation of returns and personal opportunity cost of capital. Higher PERP is associated with greater stock market participation. Our results hold after we control for known factors, such as financial literacy, trust, and loss aversion, and are stronger for the level of stock investment. Disentangling PERP shows that both components help explain both stock market participation and the level of participation.

Original languageEnglish
Article number106220
Number of pages14
JournalJournal of Banking and Finance
Publication statusPublished - Mar 2022


  • Equity risk premium
  • Financial literacy
  • Loss aversion
  • Stock market participation
  • Trust

Cite this