Fertility policy and stock market participation: Evidence from the universal two-child policy in China

The Universal Two-Child Policy (UTCP) was implemented in 2016 to mitigate China's aging society. Based on the China Household Finance Survey in 2015 and 2017, this paper applies a difference-in-difference (DID) model to investigate the UTCP's impact on households' stock market participation behavior. The results show that the UTCP has a negative impact on stock market participation, which reduces households' stock market participation ratio as well as stock allocation in their financial portfolios. This decline is caused by the change in the risk preference of households. Furthermore, the impact of UTCP is more pronounced for households that are more risk averse, households that live in first-and second-tier cities, households that live in central and eastern China and households that have already had one child. Overall, this study provides new insights into the impact of China's UTCP on households' economic behavior and their decisions regarding financial market participation.