On the Origins of Financial Development: Ancestral Population Diversity and Financial Risk-Taking
86 Pages Posted: 7 Jul 2020 Last revised: 17 Nov 2021
Date Written: July 6, 2020
We hypothesize that financial risk-taking originates in preindustrial ancestral population diversity. We use data on immigrants residing in the United States and show that controlling for all known determinants of portfolio decisions and more than 100 control variables, diversity in the country of immigrants’ origin positively affects stock market participation and asset allocation but not the ownership of bonds or savings accounts. Our results remain robust when instrumenting diversity with plant variety. We also identify the channels through which the effect of diversity operates, but also conclude that diversity exerts an independent effect and comprises a positive financial endowment.
Keywords: Stock market participation; Equity share; SIPP; Immigrants; Individualism; Scientific knowledge; Financial endowment.
JEL Classification: G41, O16, Z13
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