Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios

55 Pages Posted: 20 Nov 2009 Last revised: 18 Apr 2015

See all articles by Daniel Paravisini

Daniel Paravisini

London School of Economics & Political Science (LSE)

Veronica Rappoport

London School of Economics & Political Science (LSE)

Enrichetta Ravina

Kellogg School of Management; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: April 8, 2015

Abstract

We estimate risk aversion from investors’ financial decisions in a person-to-person lending platform. We develop a method that obtains a risk aversion parameter from each portfolio choice. Since the same individuals invest repeatedly, we construct a panel dataset that we use to disentangle heterogeneity in attitudes towards risk across investors, from the elasticity of risk aversion to changes in wealth. We find that wealthier investors are more risk averse in the cross section, and that investors become more risk averse after a negative housing wealth shock. Thus, investors exhibit preferences consistent with decreasing relative risk aversion and habit formation.

Keywords: Risk Aversion, Panel Data, Credit Market

JEL Classification: E21, G11, D12, D14

Suggested Citation

Paravisini, Daniel and Rappoport, Veronica and Ravina, Enrichetta, Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios (April 8, 2015). Available at SSRN: https://ssrn.com/abstract=1507902 or http://dx.doi.org/10.2139/ssrn.1507902

Daniel Paravisini

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Veronica Rappoport

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Enrichetta Ravina (Contact Author)

Kellogg School of Management ( email )

Evanston, IL 60208
United States
8474676872 (Phone)

HOME PAGE: http://https://sites.google.com/view/eravina/home

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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