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On the State and Wealth dependence of risk aversion: An analysis using severance pay allocation

Patrizia Ordine and Giuseppe Rose

The North American Journal of Economics and Finance, 2017, vol. 42, issue C, 156-171

Abstract: State and Wealth dependence of individual financial risk preferences are investigated using Italian longitudinal data. Severance pay investments of private sector employees are used to elicit risk aversion. The identification strategy relies on (i) the behavior of workers changing job contract because of legal limits imposed to fixed-term contract renewal; (ii) the presence of different income prospects and employment protection from the risk of layoff associated to different labor arrangements. Fixed-Effects estimates show that financial investments – and consequently risk preferences – are not affected by expected wealth modifications. Conversely, employment protection determines risk attitude pointing for the existence of state-dependent relative risk aversion as regards financial investment decisions.

Keywords: Relative risk aversion; Pension funds; Job protection; State-dependent preferences (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:156-171