Working Paper: CEPR ID: DP17412
Authors: Kaveh Majlesi; Andreas Ek; Gunes Gokmen
Abstract: There are large cross-country differences in the portfolio composition of individual investors. In this paper, we study the role of cultural heritage in explaining these differences by combining data on the asset allocation of second-generation immigrants in Sweden with the cultural attributes of their parents' countries of origin. Descendants of more risk-loving and less patient cultures take more idiosyncratic risk by keeping a higher share of their financial wealth in directly held stocks. They are also less likely to delegate their equity investment, as they assign a lower share of their wealth to mutual funds. We show that these findings are not driven by the selection of migrating parents, other country of origin attributes, or individual socio-economic characteristics. Our findings also provide an alternative explanation for under-diversification and lack of delegation among many individual investors.
Keywords: culture; cultural transmission; delegation; diversification; investment behavior; risk preference; time preference
JEL Codes: G11; G40; G50; G51; Z10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cultural heritage (Z10) | Investment behavior (G11) |
| Risk-loving culture (D81) | Higher share of financial wealth in stocks (G19) |
| Risk-loving culture (D81) | Lower share of wealth in mutual funds (G23) |
| Patient culture (I10) | Higher share of wealth in mutual funds (G23) |
| Patient culture (I10) | Lower share of financial wealth in stocks (G19) |