Understanding the Effects of Marriage and Divorce on Financial Investments: The Role of Background Risk Sharing

Abstract:     
We investigate how changes in marital status affect the decisions of men and women to take on …financial risk. We use detailed register based panel data and difference-in-differences estimation strategies to benchmark any common unobserved in‡fluences on …financial investments across marital status groups. We …find that women increase the fraction of wealth invested in stocks after marriage and decrease it after divorce, whereas men show the opposite investment behavior. This indicates that women are more risk averse than men, but also that the members of a married couple adjust the profi…le of their risky investments towards that of their partner. Marriage increases the likelihood of holding stocks for both men and women. This indicates that economies of scale during marriage free up economic resources and makes investors more likely to pay participation costs in the stock market. We pay special attention to evaluating how changes in labor income risk in the household, associated with changes in marital status, affect investment responses. We …find that households whose joint labor income risk is reduced more after marriage have a higher increase in their exposure to risky assets after marriage. This indicates that income risk sharing is an important factor to consider when understanding the effects of marital status changes on …financial risk-taking.

Number of Pages in PDF File: 43

Keywords: Gender, Marriage and divorce, Stock market participation, Portfolio choice, Labor income risk sharing

JEL Classification: G11, J16, D14

working papers series