Financial Windfalls, Portfolio Allocations, and Risk Preferences

Joseph Briggs (), David Cesarini, Sean Chanwook Lee (), Erik Lindqvist and Robert Östling
Additional contact information
Joseph Briggs: Goldman Sachs
Sean Chanwook Lee: Harvard University

No 15/2023, Working Paper Series from Stockholm University, Swedish Institute for Social Research

Abstract: We investigate the impact of financial windfalls on household portfolio choices and risk exposure. Exploiting the randomized assignment of lottery prizes in three Swedish lotteries, we find a windfall gain of $100K leads to a 5-percentage-point de- crease in the risky share of household portfolios. We show theoretically that negative wealth effects are consistent with both constant and decreasing relative risk aversion and analyze how our empirical estimates help distinguish between competing models of portfolio choice. We further show our results are quantitatively aligned with the predictions of a calibrated dynamic portfolio choice model with nontradable human capital and consumption habits.

Keywords: risk preferences; portfolio choice (search for similar items in EconPapers)
JEL-codes: G11 G50 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2023-11-21
New Economics Papers: this item is included in nep-rmg and nep-upt
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Working Paper: Financial Windfalls, Portfolio Allocations, and Risk Preferences (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sofiwp:2023_015

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