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Market participant

The offices of Bursa Malaysia, Malaysia's national stock exchange (known before demutualization as Kuala Lumpur Stock Exchange)

Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors.<ref name="ssrn.com">Amedeo De Cesari, Susanne Espenlaub, Arif Khurshed, and Michael Simkovic, The Effects of Ownership and Stock Liquidity on the Timing of Repurchase Transactions (October 2010). Paolo Baffi Centre Research Paper No. 2011-100.</ref>

A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, usually with long family histories to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, index funds, exchange-traded funds, hedge funds, investor groups, banks and various other financial institutions).

The rise of the institutional investor has brought with it some improvements in market operations. There has been a gradual tendency for "fixed" (and exorbitant) fees being reduced for all investors, partly from falling administration costs but also assisted by large institutions challenging brokers' oligopolistic approach to setting standardised fees.

Trends in market participation

Stock market participation refers to the number of agents who buy and sell equity backed securities either directly or indirectly in a financial exchange. Participants are generally subdivided into three distinct sectors; households, institutions, and foreign traders. Direct participation occurs when any of the above entities buys or sells securities on its own behalf on an exchange. Indirect participation occurs when an institutional investor exchanges a stock on behalf of an individual or household. Indirect investment occurs in the form of pooled investment accounts, retirement accounts, and other managed financial accounts.

Indirect vs. direct investment

The total value of equity backed securities in the United States rose over 600% in the 25 years between 1989 and 2012 as market capitalization expanded from $2,789,999,902,720 to $18,668,333,210,000. <ref>http://data.worldbank.org/indicator/CM.MKT.LCAP.CD/countries/1W-US?display=graph</ref> The demographic composition of stock market participation, accordingly, is the main determinant of the distribution of gains from this growth. Direct ownership of stock by households rose slightly from 17.8% in 1992 to 17.9% in 2007 with the median value of these holdings rising from $14,778 to $17,000. <ref>http://www.census.gov/prod/1/gen/95statab/finance.pdf</ref> <ref>https://www.census.gov/compendia/statab/2012/tables/12s1170.pdf</ref> Indirect participation in the form of retirement accounts rose from 39.3% in 1992 to 52.6% in 2007 with the median value of these accounts more than doubling from $22,000 to $45,000 in that time. <ref>http://www.census.gov/prod/1/gen/95statab/finance.pdf</ref> <ref>https://www.census.gov/compendia/statab/2012/tables/12s1170.pdf</ref> Rydqvist, Spizman, and Strebulaev attribute the differential growth in direct and indirect holdings to differences in the way each are taxed, thus incentivizing households to invest indirectly. <ref>http://www.be.wvu.edu/divecon/econ/douglas/seminar/SpizmanStockOwnership.pdf</ref>

Participation by income and wealth strata

Rates of participation and the value of holdings differs significantly across strata of income. In the bottom quintile of income, 5.5% of households directly own stock and 10.7% hold stocks indirectly in the form of retirement accounts. <ref>https://www.census.gov/compendia/statab/2012/tables/12s1170.pdf</ref> The top decile of income has a direct participation rate of 47.5% and an indirect participation rate in the form of retirement accounts of 89.6%. <ref>https://www.census.gov/compendia/statab/2012/tables/12s1170.pdf</ref> The median value of directly owned stock in the bottom quintile of income is $4,000 and is $78,600 in the top decile of income as of 2007. <ref>http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf</ref> The median value of indirectly held stock in the form of retirement accounts for the same two groups in the same year is $6,300 and $214,800 respectively. <ref>http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf</ref> Since the Great Recession of 2008 households in the bottom half of the income distribution have lessened their participation rate both directly and indirectly from 53.2% in 2007 to 48.8% in 2013, while over the same time period households in the top decile of the income distribution slightly increased participation 91.7% to 92.1%. <ref>http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf</ref> The mean value of direct and indirect holdings at the bottom half of the income distribution moved slightly downward from $53,800 in 2007 to $53,600 in 2013. <ref>http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf</ref> In the top decile, mean value of all holdings fell from $982,000 to $969,300 in the same time. <ref>http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf</ref> The mean value of all stock holdings across the entire income distribution is valued at $269,900 as of 2013. <ref>http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf</ref>


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Market participant
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