Why Do People Make Risky Investments?

Why are some people willing to make risky investment decisions while others are more careful with their money? In a forthcoming article in the Journal of Finance, UCD economist Paul Devereux and co-authors Sandra Black, Petter Lundborg and Kaveh Majlesi use detailed data from Sweden to answer this important question.

Financial investment behavior is highly correlated between parents and their children. Using Swedish data, we find that the decision of adoptees to hold equities is associated with the behavior of both biological and adoptive parents, implying a role for both genetic and environmental influences. However, we find that nurture has a stronger influence on the share of financial assets invested in equities and on portfolio volatility, suggesting that financial risk-taking is substantially environmentally determined. The parental investment variables substantially increase the explanatory power of cross-sectional regressions and so may play an important role in understanding cross-sectional heterogeneity in investment behavior.

You can find a pre-publication version of this paper here.

At UCD, Paul Devereux teaches Economics and Society to first year students and Econometrics to third year students and PhD students.

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