Locus of Control and Investment in Risky Assets
49 Pages Posted: 19 Dec 2016
We show that household heads with a strong internal economic locus of control are more likely to hold equity and hold a larger share of equity in their investment portfolio. This relation holds when we control for economic preferences and possible confounders such as financial literacy, overconfidence, optimism, trust, and other personality traits. We argue that this relation is driven by a link between internal economic locus of control and a lower perception of the risk of investing inequity. Those with a strong internal economic locus of control perceive less variance in equity, making these investments more attractive.
Keywords: household portfolios, personality traits, risk and time preferences, risk perception
JEL Classification: G11, D14, D19
Suggested Citation: Suggested Citation