Time out for trading

Title: Time out for trading

Abstract: To what extent do frictions associated with individuals’ opportunity cost of time explain limited stock market participation and inertia in portfolio rebalancing? Using administrative register data, we obtain plausible exogenous variation in opportunity cost of time due to mandated self-isolation of close contacts to infected individuals during the COVID-19 pandemic. The reduction in opportunity cost of time increases trading activity by 20% during the quarantine. Activity increases both for existing participants and nonparticipants, leading to a longer-term positive impact on stock market participation of 4 percentage points. We find stronger impacts on younger individuals and those without children. Trading activity increases more strongly for purchases than sales, and we see greater activity for both stocks and mutual funds. Overall, we provide casual evidence of the importance of time frictions in household finance.