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Social preferences and portfolio choice

  • Riedl A.M.
  • Smeets P.M.A.

    (GSBE)

This paper explores whether social preferences influence portfolio choices of retail investors. We use administrative investor trading records which we link to decisions of the same investors in experiments with real money at stake. We show that social preferences rather than return expectations or risk perceptions are the main driver of investments in socially responsible SRI mutual funds. Social preferences are only associated with investments in SRI funds without tax benefits, but are unrelated to investments in SRI funds with tax incentives. This illustrates that tax incentives change the clientele of mutual funds and that tax incentives crowd out the intrinsic motivations of investors with strong social preferences. Our results also show that prosocial behavior in one domain experiment is correlated with prosocial behavior in another domain investments, which adds to the discussion on the usefulness of experiments in finance.

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File URL: http://pub.maastrichtuniversity.nl/36a506f6-9bf9-46c8-9691-efab7d9ed5a5
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Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 051.

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Date of creation: 2013
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Handle: RePEc:unm:umagsb:2013051
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