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Nature or Nurture: What Determines Investor Behavior?

Amir Barnea (), Henrik Cronqvist and Stephan Siegel ()
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Amir Barnea: Claremont McKenna College

No 72, SIFR Research Report Series from Institute for Financial Research

Abstract: Using data on identical and fraternal twins' complete financial portfolios, we decompose the crosssectional variation in investor behavior. We find that a genetic factor explains about one third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experiences. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation - the relative amount invested in equities and the portfolio volatility - to genetic variation in risk preferences.

Keywords: Portfolio choice; Investor heterogeneity; Behavioral genetics (search for similar items in EconPapers)
JEL-codes: D10 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp and nep-neu
Date: 2010-09-15
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