Stock market optimism and participation cost: a mean-variance estimation

We use household data to estimate the cost of participating to financial markets and the cross sectional dispersion of stock market optimism. Our analysis is based on a mean-variance framework, within which we derive structural decision rules for individual composition of the risky assets portfolio to be efficient, as function of both the amount to invest and the optimism about excess return of stocks over bonds. Exploiting the observed heterogeneity in risky asset holdings, we identify both the fixed cost of stock market participation and the dispersion of optimism about excess return. Using the Italian Survey of Household Income and Wealth we estimate a fixed cost of participating to the stock market of about 150 euro per year and a standard deviation of 30% in the optimism about excess return