Wealth, Portfolio Allocations, and Risk Preference
Erik Lindqvist (),
David Cesarini () and
Joseph Briggs ()
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Robert Ã–stling: Stockholm University
Authors registered in the RePEc Author Service: Robert Östling ()
No 1089, 2016 Meeting Papers from Society for Economic Dynamics
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.
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1089
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