What Drives the Heterogeneity in Portfolio Choice? The Role of Institutional, Traditional, and Behavioral Factors

We analyze household stock market participation and allocation in a survey covering 19 European countries. We jointly control for all relevant variables from prior studies, which typically focus on one at a time, and omit risk-aversion. Excellent full model predictive power decomposes into institutional (country) fixed effects (30%), traditional individual-level variables (50%), and more recently identified behavioral variables (20%), and a single latent factor captures 93% of total explanatory power. We sketch a hierarchical framework where factors' effects vary by agents' proneness to participate. We also challenge and complement existing interpretations given to IQ, sociability, trust, and life experiences