The Long-Run Influence of Local Economic Conditions on Financial Decision-Making

37 Pages Posted: 13 Jun 2019

See all articles by Erin McGuire

Erin McGuire

Scheller College of Business, Georgia Institute of Technology

Date Written: May 16, 2019

Abstract

A growing literature in economics explores the relationship between personal experiences with the business cycle and belief/preference formation. There exists substantial evidence using national variation in business cycles that personal experiences hold substantial weight in decision-making. However, the use of national aggregates limits researchers to the use of variation in decisions across birth-cohorts. Using state-level personal income for the majority of the 20th century, I investigate whether individual investment decisions are altered by sub-national economic fluctuations. Along with providing evidence that preferences/beliefs about investment begin to form in late childhood, my results suggest that children who grew up in states with lower average personal income invest less in risky assets throughout their lives, invest more in property, and are less likely to be self employed.

Keywords: Great Depression, Individual Investment

JEL Classification: D03, D14, D83, D84, E21, G11

Suggested Citation

McGuire, Erin, The Long-Run Influence of Local Economic Conditions on Financial Decision-Making (May 16, 2019). Available at SSRN: https://ssrn.com/abstract=3389389 or http://dx.doi.org/10.2139/ssrn.3389389

Erin McGuire (Contact Author)

Scheller College of Business, Georgia Institute of Technology ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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