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Locus of Control and Investment in Risky Assets

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  • Salamanca, Nicolás

    (Melbourne Institute of Applied Economic and Social Research)

  • de Grip, Andries

    (ROA, Maastricht University)

  • Fouarge, Didier

    (ROA, Maastricht University)

  • Montizaan, Raymond

    (ROA, Maastricht University)

Abstract

We show that household heads with a strong internal economic locus of control are more likely to hold equity and hold a larger share of equity in their investment portfolio. This relation holds when we control for economic preferences and possible confounders such as financial literacy, overconfidence, optimism, trust, and other personality traits. We argue that this relation is driven by a link between internal economic locus of control and a lower perception of the risk of investing inequity. Those with a strong internal economic locus of control perceive less variance in equity, making these investments more attractive.

Suggested Citation

  • Salamanca, Nicolás & de Grip, Andries & Fouarge, Didier & Montizaan, Raymond, 2016. "Locus of Control and Investment in Risky Assets," IZA Discussion Papers 10407, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10407
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    Keywords

    household portfolios; personality traits; risk and time preferences; risk perception;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D19 - Microeconomics - - Household Behavior - - - Other

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