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Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets

Black, Sandra E.; Devereux, Paul J.; Lundborg, Petter LU and Majlesi, Kaveh LU (2015) In Working Paper / Department of Economics, School of Economics and Management, Lund University
Abstract
We investigate whether acquiring more education when young has long-term effects on risk-taking behavior in financial markets and whether the effects spill over to spouses and children. There is substantial evidence that more educated people are more likely to invest in the stock market. However, little is known about whether this is a causal effect of education or whether it arises from the correlation of education with unobserved characteristics. Using exogenous variation in education arising from a Swedish compulsory schooling reform in the 1950s and 1960s, and the wealth holdings of the population of Sweden in 2000, we estimate the effect of education on stock market participation and risky asset holdings. We find that an extra year of... (More)
We investigate whether acquiring more education when young has long-term effects on risk-taking behavior in financial markets and whether the effects spill over to spouses and children. There is substantial evidence that more educated people are more likely to invest in the stock market. However, little is known about whether this is a causal effect of education or whether it arises from the correlation of education with unobserved characteristics. Using exogenous variation in education arising from a Swedish compulsory schooling reform in the 1950s and 1960s, and the wealth holdings of the population of Sweden in 2000, we estimate the effect of education on stock market participation and risky asset holdings. We find that an extra year of education increases stock market participation by about 2% for men but there is no evidence of any positive effect for women. More education also leads men to hold a greater proportion of their financial assets in stocks and other risky financial assets. We find no evidence of spillover effects from male schooling to the financial decisions of spouses or children. (Less)
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author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
Portfolio choice, Asset allocation, Returns to education, Risk-taking, Investment behavior
in
Working Paper / Department of Economics, School of Economics and Management, Lund University
issue
8
pages
45 pages
publisher
Department of Economics, Lund Universtiy
language
English
LU publication?
yes
id
5d9c077e-ea1a-4dc7-8066-8845a2e8e8bd (old id 5159481)
alternative location
http://swopec.hhs.se/lunewp/abs/lunewp2015_008.htm
date added to LUP
2015-03-23 13:18:19
date last changed
2016-04-16 07:57:04
@misc{5d9c077e-ea1a-4dc7-8066-8845a2e8e8bd,
  abstract     = {We investigate whether acquiring more education when young has long-term effects on risk-taking behavior in financial markets and whether the effects spill over to spouses and children. There is substantial evidence that more educated people are more likely to invest in the stock market. However, little is known about whether this is a causal effect of education or whether it arises from the correlation of education with unobserved characteristics. Using exogenous variation in education arising from a Swedish compulsory schooling reform in the 1950s and 1960s, and the wealth holdings of the population of Sweden in 2000, we estimate the effect of education on stock market participation and risky asset holdings. We find that an extra year of education increases stock market participation by about 2% for men but there is no evidence of any positive effect for women. More education also leads men to hold a greater proportion of their financial assets in stocks and other risky financial assets. We find no evidence of spillover effects from male schooling to the financial decisions of spouses or children.},
  author       = {Black, Sandra E. and Devereux, Paul J. and Lundborg, Petter and Majlesi, Kaveh},
  keyword      = {Portfolio choice,Asset allocation,Returns to education,Risk-taking,Investment behavior},
  language     = {eng},
  note         = {Working Paper},
  number       = {8},
  pages        = {45},
  publisher    = {Department of Economics, Lund Universtiy},
  series       = {Working Paper / Department of Economics, School of Economics and Management, Lund University},
  title        = {Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets},
  year         = {2015},
}