Locus of Control and Investment in Risky Assets

49 Pages Posted: 19 Dec 2016

See all articles by Nicolas Salamanca

Nicolas Salamanca

University of Melbourne; IZA; University of Melbourne - ARC Centre of Excellence for Children and Families over the Life Course

Andries de Grip

Maastricht School of Business and Economics; IZA Institute of Labor Economics

Didier Fouarge

Maastricht University

Raymond Michel Montizaan

Maastricht University - Department of Accounting and Information Management

Abstract

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

Salamanca, Nicolas and de Grip, Andries and Fouarge, Didier and Montizaan, Raymond Michel, Locus of Control and Investment in Risky Assets. IZA Discussion Paper No. 10407, Available at SSRN: https://ssrn.com/abstract=2886778

Nicolas Salamanca (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

IZA ( email )

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

University of Melbourne - ARC Centre of Excellence for Children and Families over the Life Course ( email )

Andries De Grip

Maastricht School of Business and Economics ( email )

P. O. Box 616
Maastricht, NL 6200 MD
Netherlands

IZA Institute of Labor Economics

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

Didier Fouarge

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Raymond Michel Montizaan

Maastricht University - Department of Accounting and Information Management ( email )

Netherlands

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