Understanding Japanese Household Portfolios

Why do Japanese households hold so few stocks? We use a quantitative\r\nlife-cycle portfolio choice model to argue in favour of two main explanations.\r\nFirst, households have a very low level of trust in the stock market due to\r\nJapan's history of poor corporate governance. Second, stock returns to\r\nindividual stockholders have been low. Before 1990, this was due to excessive\r\nfees and commissions. Since the 1990 financial crisis, the Japanese market\r\nitself has delivered low and volatile returns. Counterfactual analysis\r\nsuggests that, if sustained, recent improvements in corporate governance and\r\neconomic performance should lead to higher stock market participation.