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

SAFE Working Paper No. 13

146 Pages Posted: 3 Apr 2013  

Laurent E. Calvet

EDHEC Business School - Department of Economics & Finance; CEPR

Paolo Sodini

Stockholm School of Economics - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: March 11, 2013

Abstract

This paper investigates risk-taking in the liquid portfolios held by a large panel of Swedish twins. We document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Human capital, which we estimate directly from individual labor income, also drives risk-taking positively, while internal habit and expenditure commitments tend to reduce it. Our micro findings lend strong support to decreasing relative risk aversion and habit formation preferences. Furthermore, heterogeneous risk sensitivities across investors help reconcile individual preferences with representative-agent models.

Keywords: Asset allocation, communication, genetics, habit formation, human capital, labor income, leverage, participation, risk-taking, social interactions, twin study

JEL Classification: C23, D14, G11

Suggested Citation

Calvet, Laurent E. and Sodini, Paolo, Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios (March 11, 2013). SAFE Working Paper No. 13. Available at SSRN: https://ssrn.com/abstract=2244168 or http://dx.doi.org/10.2139/ssrn.2244168

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

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