Participation in the stock market is limited, especially early in life. By contrast, human capital investment is widespread, especially early in life. Returns to equity are invariant across households, while returns to human capital vary. We demonstrate in this paper that once human capital investment is allowed for and, critically, disciplined to match observed dispersion in earnings, a standard model of portfolio choice delivers stock market participation rates consistent with the data over the entire life cycle. Moreover, we show that endogenizing human capital alters the role of borrowing costs and short sales constraints in limiting stock market participation. Joint with Kartik Athreya and Urvi Neelakantan.

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