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Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets

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  • Sandra E Black
  • Paul J Devereux
  • Petter Lundborg
  • Kaveh Majlesi

Abstract

We investigate whether acquiring more primary education has long-term effects on risk-taking behavior in financial markets. Using exogenous variation in education from a compulsory schooling change combined with wealth data for the Swedish population, we estimate the effect of education on stock market participation and on the share of financial wealth invested in stocks, conditional on participation. For men, an extra year of education increases market participation by two percentage points and the share of financial wealth allocated to stocks by 10%. We find suggestive evidence that greater financial wealth is a potential channel through which education increases participation, consistent with the existence of fixed costs. Lower risk aversion is a potential channel through which education increases the stock share. The reform has less effect on female schooling attainment and there is no evidence that this additional education affects women’s asset allocation. There is no evidence of spillovers to children.

Suggested Citation

  • Sandra E Black & Paul J Devereux & Petter Lundborg & Kaveh Majlesi, 2018. "Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets," Review of Finance, European Finance Association, vol. 22(3), pages 951-975.
  • Handle: RePEc:oup:revfin:v:22:y:2018:i:3:p:951-975.
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    1. repec:eee:jhecon:v:57:y:2018:i:c:p:206-220 is not listed on IDEAS
    2. repec:eee:socmed:v:212:y:2018:i:c:p:168-178 is not listed on IDEAS
    3. Black, Sandra & Devereux, Paul J. & Lundborg, Petter & Majlesi, Kaveh, 2015. "On the Origins of Risk-Taking," CEPR Discussion Papers 10694, C.E.P.R. Discussion Papers.
    4. Alex-Petersen, Jesper & Lundborg, Petter & Rooth, Dan-Olof, 2017. "Long-Term Effects of Childhood Nutrition: Evidence from a School Lunch Reform," IZA Discussion Papers 11234, Institute of Labor Economics (IZA).
    5. Sandra E. Black & Paul J. Devereux & Petter Lundborg & Kaveh Majlesi, 2017. "On the Origins of Risk-Taking in Financial Markets," Journal of Finance, American Finance Association, vol. 72(5), pages 2229-2278, October.
    6. repec:eee:jeeman:v:94:y:2019:i:c:p:254-273 is not listed on IDEAS
    7. Bingley, Paul & Martinello, Alessandro, 2017. "The Effects of Schooling on Wealth Accumulation Approaching Retirement," Working Papers 2017:9, Lund University, Department of Economics.
    8. Lundborg, Petter & Majlesi, Kaveh, 2018. "Intergenerational transmission of human capital: Is it a one-way street?," Journal of Health Economics, Elsevier, vol. 57(C), pages 206-220.
    9. Neugart, Michael, 2016. "Economic systems and risk preferences: evidence from East and West Germany," Annual Conference 2016 (Augsburg): Demographic Change 145475, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Portfolio choice; Returns to education; Asset allocation; Risky share;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

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