Scandinavian Working Papers in Economics

Knut Wicksell Working Paper Series,
Lund University, Knut Wicksell Centre for Financial Studies

No 2015/2: No. 2015/2 :Learning to Take Risks? The Effects of Education on Risk-Taking in Finacial Markets

Sandra E. Black , Paul J. Devereux , Etter Lundborg and Kaveh Majlesi
Additional contact information
Sandra E. Black: Knut Wicksell Centre for Financial Studies, Lund University
Paul J. Devereux: Knut Wicksell Centre for Financial Studies, Lund University
Etter Lundborg: Knut Wicksell Centre for Financial Studies, Lund University
Kaveh Majlesi: Knut Wicksell Centre for Financial Studies, Lund University

Abstract: We investigate whether acquiring more education when young has long-term effects on risktaking behavior in financial markets and whether the effects spill over to spouses and children. There is substantial evidence that more educated people are more likely to invest in the stock market. However, little is known about whether this is a causal effect of education or whether it arises from the correlation of education with unobserved characteristics. Using exogenous variation in education arising from a Swedish compulsory schooling reform in the 1950s and 1960s, and the wealth holdings of the population of Sweden in 2000, we estimate the effect of education on stock market participation and risky asset holdings. We find that an extra year of education increases stock market participation by about 2% for men but there is no evidence of any positive effect for women. More education also leads men to hold a greater proportion of their financial assets in stocks and other risky financial assets. We find no evidence of spillover effects from male schooling to the financial decisions of spouses or children.

Keywords: Portfolio choice; Asset-allocation; Risky assets; Investment behavior; Returns to education

JEL-codes: D14; D31; G11; I24; I26

47 pages, March 7, 2016

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