Motivated by US old investors’ active equity investment, which seems contrary to the life cycle risk aversion hypothesis, this work provides new empirical evidence that old investors’ income structure plays an important role in equity investment. We find that pension payments to the old generation are a precondition for the old generation’s equity investment, a phenomenon which we have named the stepping stone effect. In contrast, we do not find that social security payments encourage equity investment by the old generation. Our results also provide evidence to support the ‘behavioral life cycle savings hypothesis’ of Shefrin and Thaler (1988). We further find that private pension payments to the old generation are more relevant to the old generation’s equity investment than public pension payments.

JEL classification: C12; C13; G2; G14

Keywords: equity demand; old generation; pension payment; social security payment