Locus of control and investment in risky assets
AbstractUsing representative household panel data, we show that the investment behavior of households is related to the economic locus of control of household heads. A households internal locus of control in economic issues is positively related to its decision to hold risky assets as well as its share of risky investments. We find evidence that these relations are due to a lower perception of the risk of investing in risky assets Those who have an internal economic locus of control perceive less variance in risky assets, which makes these assets more attractive. The relation between investmentin risky assets and locus of control cannot be explained by risk and time preferences or by personality traits such as optimism and the Big Five traits. Furthermore, the relation is independent of household socioeconomic background in terms of wealth or knowledge-- it holds for sophisticated and unsophisticated households alike.
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Bibliographic InfoPaper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 052.
Date of creation: 2013
Date of revision:
Personal Finance; Household Behavior and Family Economics: Other; Portfolio Choice; Investment Decisions;
Other versions of this item:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D19 - Microeconomics - - Household Behavior - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-CFN-2014-02-02 (Corporate Finance)
- NEP-NEU-2014-02-02 (Neuroeconomics)
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