On the Origins of Risk-Taking
Risk-taking behavior is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use data on stock market participation of Swedish adoptees and relate this to the investment behavior of both their biological and adoptive parents. We find that stock market participation of parents increases that of children by about 34% and that both pre-birth and post-birth factors are important. However, once we condition on having positive financial wealth, we find that nurture has a much stronger influence on risk-taking by children, and the evidence of a relationship between stock-holding of biological parents and their adoptive children becomes very weak. We find similar results when we study the share of financial wealth that is invested in stocks. This suggests that a substantial proportion of risk-attitudes and behavior is environmentally determined.
The data used in this paper come from the Swedish Interdisciplinary Panel (SIP) administered at the Centre for Economic Demography, Lund University, Sweden. This paper has benefited from the valuable comments of participants at seminars at the Copenhagen Business School, Lund University, Southern Denmark University, The University of Texas at Austin, UC Davis, and conference participants at the ABL Conference, ESPE, and SoLE/EALE. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
BLACK, S. E., DEVEREUX, P. J., LUNDBORG, P. and MAJLESI, K. (2017), On the Origins of Risk‐Taking in Financial Markets. The Journal of Finance, 72: 2229-2278. doi:10.1111/jofi.12521