According to Federal Reserve flow of funds table B100e, ownership of equities, as a percent of total household assets has ranged from 20% to 25% since 2002 — about the same level as in 1994-1995, before the speculative bubble over the turn of the century.

How can this be? Flow of funds table F100 shows that net sales of equities by households were over 2 trillion dollars since 2000.

With prices falling after the market peaked in 2000 and with massive net sales of stocks indicated by the Federal Reserve flow of funds accounts, how can the percentage of assets represented by stocks still be about the same as in 1995?

The graph shows equity holdings by US households as a percentage of total assets and financial assets over the last decade.

Paradox? Steady % of Household Assets Despite Heavy Stock Sales
Paradox? Steady % of Household Assets Despite Heavy Stock Sales

The Paradox Explained

The apparent paradox of selling without reducing holdings is resolved by answering this riddle:

How can you sell stock and still have the same position as before you started to sell?

The answer is simple:

You sell stocks that don’t belong to you (short-selling) or that you never owned (exercising options).

As suggested in the earlier article, “Buybacks + Options + Hedge Funds + Insider Information = Crime?“, the primary explanation for the reported net sales of equities by households in recent years has been the exercise of executive stock options, and short-selling by hedge funds and speculators.

  1. Exercising Options: When an executive exercises a stock option, he buys a stock he never owned for one price and then sells the stock for a profit. This appears on the flow of funds accounts as a net sale of stocks. With corporations buying back their own stock, the amount of stock outstanding remains about the same.

  2. Short-Selling: When a hedge fund sells stock short, they do so by borrowing stock from someone else to settle the initial transaction, and then buying back the stock when prices fall, realizing a profit that appears as a net sale of stocks.

Since there are indications that stock options and short-selling have been of an order of magnitude that explains the net sales of two trillion in equities over the last five years, it seems that the paradox is explained.


The Bank of Japan publishes quarterly statistics on Japanese national flow of funds accounts in Excel format, in English, on their website.

The following is quoted from the “Guide to Japan’s Flow of Funds Accounts“:

“The Bank of Japan has been compiling the Flow of Funds Accounts Statistics (the FFA) since 1958, covering the data from 1954. The FFA is released quarterly, and preliminary data is released on the 11th business day of the last month in the following quarter, and final data on the fourth business day of the last month in the second quarter after the surveyed quarter. In principle, the FFA is revised retroactively at the same time with the final data for the first quarter is released (the fourth business day in September) as final data for the previous fiscal year can be obtained at this time.”

“The FFA is a matrix showing financial transactions among various economic entities, and corresponding stock data on financial claims and liabilities of them. It records movements of financial assets and liabilities among institutional units called sectors, such as financial institutions, corporations and households, for each financial instruments called transaction items i.e., deposits and loans.”


In 1993, after thousands of hours of committee work by economists and bureaucrats from all nations, the United Nations, with the blessing of the International Monetary Fund, issued a recommendation for a System of National Accounts (known as SNA 1993).

Compared to the Federal Reserve National Flow of Funds Accounts, the United Nations SNA 1993 is not a product that is ready for prime time.

Whereas the Federal Reserve statistics evolved from brilliant insights by the founder of flow of funds accounting, Morris Copeland, in the 1940s and 1950s, based on practical concepts and served with sufficient detail by financial instrument and market sector to be useful, the United Nations product has been jumbled together by macro-economists, with seemingly slight interest in financial markets.

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