Risk aversion and wealth: evidence from person-to-person lending portfolios

Daniel Paravisini, Veronica Rappoport and Enrichetta Ravina

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC.

Keywords: risk aversion; portfolio choice; crowdfunding (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 G11 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-cbe, nep-mac, nep-pay and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (50)

Published in Management Science, February, 2017, 63(2), pp. 279-297. ISSN: 0025-1909

Downloads: (external link)
http://eprints.lse.ac.uk/62137/ Open access version. (application/pdf)

Related works:
Working Paper: Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios (2010)
Working Paper: Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:62137

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().