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Once in a Lifetime? The Effects of the Global Financial Crisis on Household Willingness to Take Financial Risk

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  • Buly A. Cardak
  • Vance L. Martin

Abstract

We investigate the effect of the global financial crisis (GFC) on household willingness to take risk. A model incorporating experienced returns as a determinant of risk tolerance is specified, with time‐varying weights on past stock returns capturing changes during the crisis. Results show that households became more myopic during the GFC, placing greater weight on more recent stock returns when evaluating financial risk attitudes. Households have been more sensitive to financial shocks during the GFC and post‐GFC periods, with the change in sensitivity found to be uniform over the life cycle and other household characteristics, but differing by income.

Suggested Citation

  • Buly A. Cardak & Vance L. Martin, 2019. "Once in a Lifetime? The Effects of the Global Financial Crisis on Household Willingness to Take Financial Risk," The Economic Record, The Economic Society of Australia, vol. 95(311), pages 442-461, December.
    • Handle: RePEc:bla:ecorec:v:95:y:2019:i:311:p:442-461
    DOI: 10.1111/1475-4932.12506
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    Cited by:

    1. John Grable & Eun Jin Kwak & Martha Fulk & Aditi Routh, 2022. "A Simplified Measure of Investor Risk Aversion," Journal of Interdisciplinary Economics, , vol. 34(1), pages 7-34, January.
    2. Wookjae Heo & John E. Grable & Abed G. Rabbani, 2020. "A test of the association between the initial surge in COVID-19 cases and subsequent changes in financial risk tolerance," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 13(1), pages 3-19, August.

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