"Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios"
Publication type: Working paper
Research Archive Topic: Business Economics and Public Policy
We estimate risk aversion from investors' portfolio choices on a person-to-person lending platform. Our method obtains a risk aversion parameter from each investment and generates a panel that we use to disentangle the elasticity of risk aversion to wealth from heterogeneity in risk attitudes across investors and changes in beliefs. We find an average income-based Relative Risk Aversion of 2.85, a median of 1.62, and substantial heterogeneity and skewness across investors. Risk aversion increases after a negative housing wealth shock, consistent with Decreasing Relative Risk Aversion. We show that ignoring heterogeneity and changes in beliefs would lead to biased estimates.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.