by Elisa Castagno, Raffaele Corvino, ̊Francesco Ruggiero; CeRP WP 216/23
Using individual-level data from the Survey on Household Income and Wealth (SHIW), we estimate the extra-returns to wealth earned by highly educated individuals (education premium). Importantly, we quantify the fraction of the premium attributable to financial investment decisions, such as stock market participation and asset allocation. We find that college-graduated individuals earn annual returns to wealth that are 3.7% higher than those of their non-college-graduated peers, and we find that 19% of the extra-returns (0.7%) is due to the higher propensity to invest in the stock market. We show that this effect is particularly sizeable for college-graduated individuals with a major in Economics. Furthermore, we find that a university degree delivers 0.4% extra-returns to wealth as a result of the larger risky share of financial wealth held by college-graduated individuals. Finally, to rationalize our empirical results, we explore two economic mechanisms, namely portfolio diversification and participation persistence over time, both of which indicate a significant beneficial effect of education on returns to wealth.
Published: November 2023