Built-In or Built-Up? The Relative Impacts of Innate Skills and Acquired Attributes on Stock Market Participation

In this paper we investigate to what extent inherent, innate skills impact stock market participation as compared to attributes that can be learned or acquired. Data from the Understanding America Study survey panel are used to systematically examine the role that both intelligence and non-cognitive skills play in the decision to enter or forego the equity market as well as the level of equity holdings. Specifically, we examine both the direct and indirect impacts of survey-measured intelligence and non-cognitive skills, found as the combination of surveybased Conscientiousness and Emotional Stability instruments, on stock market participation. We examine to what extent these innate skills operate indirectly through well-observed acquired attributes such as financial literacy, stock return literacy, education, and income. We find evidence that non-cognitive skills both directly and indirectly (via the acquired attributes) encourage stock market entry, although their effect on participation levels appears to be fully indirect. We also show that intelligence affects both participation rates and levels, but the impact operates entirely in an indirect fashion through acquired attributes. On average, roughly a third of the impact of acquired attributes is shown to be due to our measure of innate skills, meaning the other two-thirds can be learned or acquired.