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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 Majleshi

Abstract

We investigate whether acquiring more education when young has long-term effects on risktaking behavior in financial markets and whether the effects spill over to spouses and children. There is substantial evidence that more educated people are more likely to invest in the stock market. However, little is known about whether this is a causal effect of education or whether it arises from the correlation of education with unobserved characteristics. Using exogenous variation in education arising from a Swedish compulsory schooling reform in the 1950s and 1960s, and the wealth holdings of the population of Sweden in 2000, we estimate the effect of education on stock market participation and risky asset holdings. We find that an extra year of education increases stock market participation by about 2% for men but there is no evidence of any positive effect for women. More education also leads men to hold a greater proportion of their financial assets in stocks and other risky financial assets. We find no evidence of spillover effects from male schooling to the financial decisions of spouses or children.

Suggested Citation

  • Sandra E. Black & Paul J. Devereux & Petter Lundborg & Kaveh Majleshi, 2015. "Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets," Working Papers 201509, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201509
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    File URL: http://hdl.handle.net/10197/6502
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    Cited by:

    1. Black, Sandra E. & Devereux, Paul J. & Lundborg, Petter & Majlesi, Kaveh, 2015. "On The Origins of Risk-Taking," Working Papers 2015:20, Lund University, Department of Economics.
    2. Bingley, Paul & Martinello, Alessandro, 2017. "The Effects of Schooling on Wealth Accumulation Approaching Retirement," Working Papers 2017:9, Lund University, Department of Economics.
    3. repec:eee:jhecon:v:57:y:2018:i:c:p:206-220 is not listed on IDEAS
    4. repec:eee:socmed:v:212:y:2018:i:c:p:168-178 is not listed on IDEAS
    5. 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.
    6. repec:bla:jfinan:v:72:y:2017:i:5:p:2229-2278 is not listed on IDEAS
    7. 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).
    8. 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.
    9. 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.
    10. repec:eee:jeeman:v:94:y:2019:i:c:p:254-273 is not listed on IDEAS

    More about this item

    Keywords

    Financial decision-making; Returns to education; Portfolio choice;

    JEL classification:

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

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