Economics at your fingertips  

Macroeconomic experiences and risk taking of euro area households

Miguel Ampudia Fraile and Michael Ehrmann ()

European Economic Review, 2017, vol. 91, issue C, 146-156

Abstract: This paper studies to what extent the experiences of households shape their willingness to take financial risks. It starts by extending the U.S. evidence of Malmendier and Nagel (2011) to euro area households, and shows that experienced stock market returns matter in a statistically significant and economically substantial fashion: better experiences make households more willing to take financial risk and increase their stock market participation, even if euro area households seem to be discounting the past more quickly than those in the United States. Subsequently, the paper moves on to show that there are additional effects stemming from the experience of stock market crashes – which are different from those of stock market booms. Crashes stay in household’s memory and lower stock market participation, whereas booms raise participation, but their effect eventually fades out. Furthermore, households in countries that witnessed a particularly severe 2008 stock market crash give substantially more weight to the most recent experience, suggesting that in these countries an even more pronounced underinvestment in the stock market should be expected in the years to come.

Keywords: D03; D14; D83; G11; Risk-taking behavior; Household finance; Learning; Portfolio choice; Rare disasters (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Macroeconomic Experiences and Risk Taking of Euro Area Households (2014) Downloads
Working Paper: Macroeconomic experiences and risk taking of euro area households (2014) Downloads
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:

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-02-06
Handle: RePEc:eee:eecrev:v:91:y:2017:i:c:p:146-156