Changes in the Risk Tolerance of US Households During 1992-2013

Paper presented at the Academy of Financial Services conference, Las Vegas, Nevada, October 2015

13 Pages Posted: 15 Nov 2016

See all articles by Sherman D. Hanna

Sherman D. Hanna

Ohio State University (OSU)

Kyoung Tae Kim

University of Alabama

Date Written: October 2015

Abstract

This research extends the work of Yao, Hanna, and Lindamood (2004) and others in attempting to ascertain how stock market fluctuations affect the risk tolerance of households. We used the 1992 to 2013 datasets of the Survey of Consumer Finances (SCF), and found that whether respondents were willing to take some risk varied somewhat during the period, with proportions increasing in the 1990’s with the increases in stock market levels, and decreasing since 2001. In contrast, the proportion of respondents willing to take substantial or above average investment risk (“high risk tolerance”) fluctuated much more during the period in relative terms, and generally was high after a sustained period of stock market gains. The proportion of respondents with high risk tolerance was low in the 2013 SCF, but is likely to be higher in the 2016 SCF. Logistic regression analyses controlling for age, racial/ethnic status, household composition, and other characteristics had generally similar results to the descriptive patterns, so the changes do not seem related to changes in household composition.

Keywords: Risk tolerance, Stock market, Survey of Consumer Finances

JEL Classification: D12, D14, G11

Suggested Citation

Hanna, Sherman D. and Kim, Kyoung Tae, Changes in the Risk Tolerance of US Households During 1992-2013 (October 2015). Paper presented at the Academy of Financial Services conference, Las Vegas, Nevada, October 2015. Available at SSRN: https://ssrn.com/abstract=2869460 or http://dx.doi.org/10.2139/ssrn.2869460

Sherman D. Hanna (Contact Author)

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

Kyoung Tae Kim

University of Alabama ( email )

312 Adams Hall
Tuscaloosa, AL 35487-0001
United States

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