Working Paper: NBER ID: w27638
Authors: Richard Sias; Laura Starks; Harry J Turtle
Abstract: We show that molecular variation in DNA related to cognition, personality, health, and body shape, predicts an individual’s equity market participation and risk aversion. Moreover, the molecular genetic endowments predict individuals’ return perceptions, most of which we find to be strikingly biased. The genetic endowments also strongly associate with many of the investor characteristics (e.g., trust, sociability, wealth) shown to explain heterogeneity in equity market participation. Our analysis helps elucidate why financial choices are heritable and how genetic endowments can help explain the links between financial choices, risk aversion, beliefs, and other variables known to explain stock market participation.
Keywords: Genetics; Risk Aversion; Stock Market Participation; Behavioral Finance
JEL Codes: D87; G11; G41; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Genetic endowments (J79) | Equity market participation (G19) |
| Genetic endowments (J79) | Risk aversion (D81) |
| Risk aversion (D81) | Equity market participation (G19) |
| Genetic endowments (J79) | Return beliefs (D83) |
| Return beliefs (D83) | Equity market participation (G19) |
| Higher genetic endowments for educational attainment (I24) | Equity market investment (G11) |
| Higher genetic scores for neuroticism (D91) | Lower equity market participation (G19) |
| Higher genetic scores for neuroticism (D91) | Lower likelihood after controlling for risk aversion and beliefs (D81) |