Nature or Nurture: What Determines Investor Behavior?
56 Pages Posted: 2 Sep 2009 Last revised: 4 Mar 2010
Date Written: February 3, 2010
Abstract
Using data on identical and fraternal twins' complete financial portfolios, we decompose the cross-sectional variation in investor behavior. We find that a genetic factor explains about one third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experiences. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation - the relative amount invested in equities and the portfolio volatility - to genetic variation in risk preferences.
Keywords: Portfolio Choice, Investor Heterogeneity, Behavioral Genetics
JEL Classification: D10, D31, G11
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios
By Laurent E. Calvet and Paolo Sodini
-
Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios
By Laurent E. Calvet and Paolo Sodini
-
Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios
By Laurent E. Calvet and Paolo Sodini
-
Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios
By Daniel Paravisini, Veronica Rappoport, ...
-
Theory of Inverse Demand: Financial Assets
By Felix Kubler, Larry Selden, ...
-
Inferior Good and Giffen Behavior for Investing and Borrowing
By Felix Kubler, Larry Selden, ...
-
Dopamine and Risk Choices in Different Domains: Findings Among Serious Tournament Bridge Players
By Anna Dreber, David G. Rand, ...
-
When is a Risky Asset 'Urgently Needed'?
By Felix Kubler, Larry Selden, ...
-
Optimal Capital Taxation for Time-Nonseparable Preferences
By Sebastian Koehne and Moritz Kuhn