Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios

51 Pages Posted: 5 Apr 2010 Last revised: 2 May 2022

See all articles by Laurent E. Calvet

Laurent E. Calvet

EDHEC Business School - Department of Economics & Finance; CEPR

Paolo Sodini

Stockholm School of Economics - Department of Finance; Swedish House of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: April 2010

Abstract

This paper investigates the determinants of financial risk-taking in a panel containing the asset holdings of Swedish twins. We measure the impact of a broad set of demographic, financial, and portfolio characteristics, and use yearly twin pair fixed effects to control for genes and shared background. We report a strong positive relation between risky asset market participation and financial wealth. Among participants, the average financial wealth elasticity of the risky share is significantly positive and estimated at 22%, which suggests that the average individual investor has decreasing relative risk aversion. Furthermore, the financial wealth elasticity of the risky share itself is heterogeneous across investors and varies strongly with characteristics. The elasticity decreases with financial wealth and human capital, and increases with habit, real estate wealth and household size. As a consequence, the elasticity of the aggregate demand for risky assets to exogenous wealth shocks is close to, but does not coincide with, the elasticity of a representative investor with constant relative risk aversion. We confirm the robustness of our results by running time-differenced instrumental variable regressions, and by controlling for zygosity, lifestyle, mental and physical health, the intensity of communication between twins, and measures of social interactions.

Suggested Citation

Calvet, Laurent E. and Sodini, Paolo, Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios (April 2010). NBER Working Paper No. w15859, Available at SSRN: https://ssrn.com/abstract=1583800

Laurent E. Calvet (Contact Author)

EDHEC Business School - Department of Economics & Finance ( email )

France

CEPR ( email )

33 Great Sutton Street
London, EC1V 0DX
United Kingdom

Paolo Sodini

Stockholm School of Economics - Department of Finance ( email )

Sveavagen 65, Box 6501
SE-113 83 Stockholm
Sweden
46 8 7369165 (Phone)
46 8 312327 (Fax)

HOME PAGE: http://www.hhs.se/secfi/People/Faculty/Finpso/finp

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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