Life Satisfaction and Stock Market Participation

Prior literature finds mixed evidence on the relationship between life satisfaction and stock market participation. Using the broad U.S. household survey data from the Panel Study of Income Dynamics (PSID), we find that households with higher life satisfaction are less likely to invest in stocks. Our findings hold during both financial crisis and non-crisis periods and remain unaffected after conducting the robustness analysis to mitigate endogeneity concerns. Our findings enrich the literature that examines the effect of emotional factors on household financial behavior. Our study also highlights that life satisfaction is an important factor in understanding investing behavioral biases and thus helps explain stock market participation puzzle.1