Nature or nurture: What determines investor behavior?

Using data on identical and fraternal twins’ complete financial portfolios, we decompose the cross-sectional variation in investor behavior. We find that a genetic factor explains about one-third of the variance in stock market participation and asset allocation. Family environment has an effect on...

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Bibliographic Details
Published in:Journal of financial economics 2010-12, Vol.98 (3), p.583-604
Main Authors: Barnea, Amir, Cronqvist, Henrik, Siegel, Stephan
Format: Article
Language:English
Subjects:
Asset allocation
Behavioral Genetics
Economic behaviour
Genetics
Investment
Investment policy
Investor behavior
Investor Heterogeneity
Investors
Portfolio Choice
Portfolio Choice Investor Heterogeneity Behavioral Genetics
Portfolio management
Portfolio selection
Risk
Securities markets
Stock exchange
Studies
Twins
Variance analysis
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Summary:Using data on identical and fraternal twins’ complete financial portfolios, we decompose the cross-sectional variation in investor behavior. We find that a genetic factor explains about one-third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experience. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation—the relative amount invested in equities and the portfolio volatility—to genetic variation in risk preferences.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2010.08.001