Locus of control and investment in risky assets

Nicolas Salamanca, Andries de Grip, Didier Fouarge and Raymond Montizaan

Journal of Economic Behavior & Organization, 2020, vol. 177, issue C, 548-568

Abstract: Internal locus of control is an important personality trait strongly related to many economic outcomes. We show that the probability to own equity and the share of equity in household portfolios increase with people’s internal locus of control. We explore, and find no evidence for, the hypothesis that this relation is driven by a link between internal economic locus of control and subjective expectations about the return and risk of investment in equity. The relation between locus of control and investment in equity also remains after controlling for risk and time preferences, financial literacy, overconfidence, optimism, trust, and other personality traits. We also show that locus of control has a stronger relation with investment in equity for financially illiterate investors. Our results document a strong and robust relation between locus of control and investment behaviour that cannot be explained by leading behavioural investment theories.

Keywords: Household portfolio; Personality trait; Subjective expectation; Risk perception; Financial literacy; Measurement error (search for similar items in EconPapers)
JEL-codes: D14 D19 G11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Locus of Control and Investment in Risky Assets (2016)
Working Paper: Locus of control and investment in risky assets (2013)
Working Paper: Locus of control and investment in risky assets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:177:y:2020:i:c:p:548-568

DOI: 10.1016/j.jebo.2020.06.032

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