Genetic Variation in Financial Decision Making

53 Pages Posted: 9 Oct 2009

See all articles by David Cesarini

David Cesarini

New York University (NYU); IFN

Magnus Johannesson

Stockholm School of Economics - Department of Economics

Paul Lichtenstein

Karolinska Institutet - Department of Medical Epidemiology and Biostatistics

Örjan Sandewall

NERA Economic Consulting (UK); Research Institute of Industrial Economics (IFN)

Björn Wallace

University of Cambridge - Faculty of Economics; Stockholm School of Economics - Department of Economics

Date Written: October 7, 2009

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 Classification: D14, G11

Suggested Citation

Cesarini, David and Johannesson, Magnus and Lichtenstein, Paul and Sandewall, Örjan and Wallace, Björn, Genetic Variation in Financial Decision Making (October 7, 2009). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1484923

David Cesarini (Contact Author)

New York University (NYU) ( email )

19 W 4th Street
6FL
New York, NY 10012
United States

IFN ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Magnus Johannesson

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

Paul Lichtenstein

Karolinska Institutet - Department of Medical Epidemiology and Biostatistics ( email )

SE-171 82 Solna
Sweden

Örjan Sandewall

NERA Economic Consulting (UK) ( email )

15 Stratford Place
London, W1C 1BE
United Kingdom

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Björn Wallace

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

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