HEC Paris2014-08-11 8:08 PM

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

Abstract

This paper investigates risk-taking in the liquid portfolios held by a large panel of Swedish twins. We document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Human capital, which we estimate directly from individual labor income, also affects risk-taking positively, while internal habit and expenditure commitments tend to reduce it. Our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences. Furthermore, heterogeneous risk sensitivities across investors help reconcile individual preferences with representative-agent models.

Author
L. E. CALVET, P. Sodini

Departments
Finance, GREGHEC (CNRS)

Journal Information
The Journal of Finance April 2014, vol. 69, n°2, pp.867-906

Full Article
http://onlinelibrary.wiley.com/doi/10.1111/jofi.12125/full

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HEC Paris

Founded in 1881 by the Paris Chamber of Commerce and Industry, HEC Paris specializes in education and research in management sciences. As a leading academic institution in Europe and worldwide, HEC Paris offers a complete and unique range of education programs for students and leaders.

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