Business Education and Portfolio Returns

Abstract

Using university admission cutoffs that generate exogenous variation in college-major choices, we provide causal evidence that enrolling in a business or economics program leads individuals to invest significantly more in the stock market, earn higher portfolio returns, and ultimately accumulate higher levels of wealth over the short to medium term. Underlying these effects, beyond differences in risk-taking, innate ability, labor market outcomes, or scale effects, is the greater financial knowledge and skills acquired through business education, enabling otherwise similar individuals to make more informed investment decisions. Thus, early investments in financial knowledge and skills shape individuals’ life-cycle wealth trajectories.

Keywords: Portfolio choice, financial literacy, portfolio returns, household wealth, returns to education, distribution of wealth.

JEL Classification: G11, G51, G53, I26.