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Wealth, Portfolio Allocations, and Risk Preference

Robert Östling, Erik Lindqvist (), David Cesarini () and Joseph Briggs ()
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Robert Östling: Stockholm University

Authors registered in the RePEc Author Service: Robert Östling ()

No 1089, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Using an administrative data set of Swedish lottery players that were randomly assigned 500M USD, we estimate the causal effect of wealth on the share of risky assets in a household's financial portfolio. We find that $150,000 causes a 9 percentage point decrease in the average household portfolio's equity share in their financial portfolio. The effect is immediate, not explained by passive investing, and negative in all subsamples considered. A decrease in risk taking could indicate increasing relative risk aversion. However, we show that a quantitative life-cycle model with realistic income profile can replicate the estimated decrease in portfolio risk, and that caution should be used when inferring risk preference from portfolio shares.

Date: 2016
New Economics Papers: this item is included in nep-upt
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