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On The Origins of Risk-Taking in Financial Markets

E. Black, Sandra; 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
Risk-taking in financial markets is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use data on stock market participation of Swedish adoptees and relate this to the investment behavior of both their biological and adoptive parents. We find that stock market participation of parents increases that of children by about 34% and that both pre-birth and post-birth factors are important. However, once we condition on having positive financial wealth, we find that nurture has a much stronger influence on risk-taking by children, and the evidence of a relationship between stock-holding of biological parents and their... (More)
Risk-taking in financial markets is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use data on stock market participation of Swedish adoptees and relate this to the investment behavior of both their biological and adoptive parents. We find that stock market participation of parents increases that of children by about 34% and that both pre-birth and post-birth factors are important. However, once we condition on having positive financial wealth, we find that nurture has a much stronger influence on risk-taking by children, and the evidence of a relationship between stock-holding of biological parents and their adoptive children becomes weaker. We find similar results when we study the share of financial wealth that is invested in stocks. This suggests that a substantial proportion of the transmission of risk behavior from parents to children is environmentally determined. (Less)
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author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
Investment behavior, Nature-Nurture, Risk-taking, Portfolio choice
in
Working Paper / Department of Economics, School of Economics and Management, Lund University
issue
20
pages
44 pages
publisher
Department of Economics, Lund Universtiy
language
English
LU publication?
yes
id
904b7606-a6f6-4cdc-ba54-4a50560c996b (old id 7752485)
alternative location
http://swopec.hhs.se/lunewp/abs/lunewp2015_020.htm
date added to LUP
2015-08-03 09:18:27
date last changed
2016-09-30 15:26:01
@misc{904b7606-a6f6-4cdc-ba54-4a50560c996b,
  abstract     = {Risk-taking in financial markets is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use data on stock market participation of Swedish adoptees and relate this to the investment behavior of both their biological and adoptive parents. We find that stock market participation of parents increases that of children by about 34% and that both pre-birth and post-birth factors are important. However, once we condition on having positive financial wealth, we find that nurture has a much stronger influence on risk-taking by children, and the evidence of a relationship between stock-holding of biological parents and their adoptive children becomes weaker. We find similar results when we study the share of financial wealth that is invested in stocks. This suggests that a substantial proportion of the transmission of risk behavior from parents to children is environmentally determined.},
  author       = {E. Black, Sandra and Devereux, Paul J. and Lundborg, Petter and Majlesi, Kaveh},
  keyword      = {Investment behavior,Nature-Nurture,Risk-taking,Portfolio choice},
  language     = {eng},
  note         = {Working Paper},
  number       = {20},
  pages        = {44},
  publisher    = {Department of Economics, Lund Universtiy},
  series       = {Working Paper / Department of Economics, School of Economics and Management, Lund University},
  title        = {On The Origins of Risk-Taking in Financial Markets},
  year         = {2015},
}