Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios

Laurent Calvet and Paolo Sodini

No 15859, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the determinants of financial risk-taking in a panel containing the asset holdings of Swedish twins. We measure the impact of a broad set of demographic, financial, and portfolio characteristics, and use yearly twin pair fixed effects to control for genes and shared background. We report a strong positive relation between risky asset market participation and financial wealth. Among participants, the average financial wealth elasticity of the risky share is significantly positive and estimated at 22%, which suggests that the average individual investor has decreasing relative risk aversion. Furthermore, the financial wealth elasticity of the risky share itself is heterogeneous across investors and varies strongly with characteristics. The elasticity decreases with financial wealth and human capital, and increases with habit, real estate wealth and household size. As a consequence, the elasticity of the aggregate demand for risky assets to exogenous wealth shocks is close to, but does not coincide with, the elasticity of a representative investor with constant relative risk aversion. We confirm the robustness of our results by running time-differenced instrumental variable regressions, and by controlling for zygosity, lifestyle, mental and physical health, the intensity of communication between twins, and measures of social interactions.

JEL-codes: C23 D14 G11 (search for similar items in EconPapers)
Date: 2010-04
Note: AP EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as “Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios” (with P. Sodini), forthcoming in Journal of Finance.

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Related works:
Journal Article: Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios (2014)
Working Paper: Twin picks: Disentangling the determinants of risk-taking in household portfolios (2013)
Working Paper: Twin picks: disentangling the determinants of risk-taking in household portfolios (2011)
Working Paper: Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios (2011)
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