Household Finance eJournal | 2021
Understanding Japanese Household Portfolios
Abstract
Why do Japanese households hold so few stocks? We use a quantitative<br>life-cycle portfolio choice model to argue in favour of two main explanations.<br>First, households have a very low level of trust in the stock market due to<br>Japan s history of poor corporate governance. Second, stock returns to<br>individual stockholders have been low. Before 1990, this was due to excessive<br>fees and commissions. Since the 1990 financial crisis, the Japanese market<br>itself has delivered low and volatile returns. Counterfactual analysis<br>suggests that, if sustained, recent improvements in corporate governance and<br>economic performance should lead to higher stock market participation.<br>