Working Paper: NBER ID: w21332
Authors: Sandra E. Black; Paul J. Devereux; Petter Lundborg; Kaveh Majlesi
Abstract: 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.
Keywords: risk-taking; intergenerational transmission; adoption; financial behavior
JEL Codes: G11; J01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parental stock market participation (G59) | Child stock market participation (G59) |
| Biological parents' stockholding (J12) | Child stock market participation (G59) |
| Adoptive parents' stockholding (J12) | Child stock market participation (G59) |
| Financial wealth (G51) | Child stock market participation (G59) |
| Nurture (adoptive parents) (J13) | Child risk-taking behavior (J13) |
| Nature (biological parents) (J12) | Child risk-taking behavior (J13) |