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Genetic Variation in Financial Decision Making
David Cesarini Massachusetts Institute of Technology (MIT) - Department of Economics Magnus Johannesson Stockholm School of Economics - Department of Economics Paul Lichtenstein Karolinska Institutet - Department of Medical Epidemiology and Biostatistics Örjan Sandewall NERA Economic Consulting Björn Wallace Stockholm School of Economics - Department of Economics Journal of Finance, Forthcoming Abstract: Individuals differ in how they compose their investment portfolios, yet empirical models of portfolio risk typically only account for a small portion of the cross-sectional variance. This paper asks if genetic variation can explain some of these individual differences. Following a major pension reform Swedish adults had to compose a portfolio from a large menu of funds. We match data on these investment decisions with the Swedish Twin Registry and find that approximately 25% of individual variation in portfolio risk is due to genetic variation. We also show that these results extend to several other aspects of financial decision-making.
Keywords: investor heterogeneity, portfolio risk, genetics, twins JEL Classifications: D14, G11 Accepted Paper SeriesDate posted: October 09, 2009 ; Last revised: October 09, 2009Suggested CitationContact Information
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