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Relationships between bank customers’ risk attitudes and their balance sheets

Cecilia Hermansson

No 15/12, Working Paper Series from Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: This paper analyzes relationships between Swedish bank customers’ risk appetite and their financial assets and debt, controlling for demographic, socio-economic, financial and educational variables including financial literacy. We use subjective risk measures, i.e. risk tolerance and risk preference, as well as an objective risk measure, i.e. relating customers’ saving deposits to more risky stocks and mutual funds as a share of total financial assets. Bank customers with high risk appetite have significantly more financial assets compared with those with medium and low risk appetite. The subjective risk measures show that those with high risk appetite have significantly higher debt than those with low risk appetite. The objective risk measure shows the opposite. The paper concludes that it is important to use several measures of risk. Also, policy makers and banks need to measure bank customers’ risk appetite in a more systematic and transparent way, in order to improve both the banks’ and their customers’ risk management, and not less importantly, to decrease macroeconomic risks.

Keywords: Household saving; debt; risk attitudes (search for similar items in EconPapers)
JEL-codes: D12 D14 E58 G21 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016-02-02
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-mac and nep-rmg
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http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-181693 (application/pdf)

Related works:
Working Paper: Relationships between bank customers’ risk attitudes and their balance sheets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:kthrec:2015_012

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