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Abstract
Theory indicates that frictions (e.g., information and transaction costs) could account for the
lower than expected stock market participation rates. This paper examines the hypothesis that
there has been a fundamental change in participation and links this change to the reduction of
these frictions by the advent of the Internet. Using panel data on household participation rates
over the past decade, the results show computer/Internet using households raised participation
substantially more than non-computer using households. The increased probability of participation
was equivalent to having over $27,000 in additional household income or over 2.5 more
mean years of education.