On the Origins of Risk-Taking in Financial Markets

77 Pages Posted: 9 Dec 2016

See all articles by Sandra E. Black

Sandra E. Black

University of Texas at Austin - Center for Law, Business, and Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Norwegian School of Economics (NHH) - Department of Economics

Paul J. Devereux

University College Dublin - Department of Economics; IZA Institute of Labor Economics

Petter Lundborg

Lund University School of Economics and Management; Tinbergen Institute; IZA Institute of Labor Economics

Kaveh Majlesi

Lund University; Research Institute of Industrial Economics (IFN); IZA Institute of Labor Economics

Date Written: December 9, 2016

Abstract

Financial investment behavior is highly correlated between parents and their children. Using Swedish data, we find that the decision of adoptees to hold equities is associated with the behavior of both biological and adoptive parents, implying a role for both genetic and environmental influences. However, we find that nurture has a stronger influence on the share of financial assets invested in equities and on portfolio volatility, suggesting that financial risk-taking is substantially environmentally determined. The parental investment variables substantially increase the explanatory power of cross-sectional regressions and so may play an important role in understanding cross-sectional heterogeneity in investment behavior.

Suggested Citation

Black, Sandra E. and Devereux, Paul J. and Lundborg, Petter and Majlesi, Kaveh, On the Origins of Risk-Taking in Financial Markets (December 9, 2016). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2883085

Sandra E. Black

University of Texas at Austin - Center for Law, Business, and Economics ( email )

Austin, TX
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Paul J. Devereux

University College Dublin - Department of Economics ( email )

Dublin 4, 4
Ireland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Petter Lundborg

Lund University School of Economics and Management ( email )

P.O Box 7080
Lund
Sweden

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Kaveh Majlesi (Contact Author)

Lund University ( email )

Box 117
Lund, S221 00
Sweden

Research Institute of Industrial Economics (IFN) ( email )

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

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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