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Risk aversion and wealth: evidence from person-to-person lending portfolios

Paravisini, Daniel, Rappoport, Veronica and Ravina, Enrichetta (2010) Risk aversion and wealth: evidence from person-to-person lending portfolios. NBER working paper, 16063. National Bureau of Economic Research, Massachusetts, USA.

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Abstract

We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC.

Item Type: Monograph (Working Paper)
Official URL: http://www.nber.org/
Additional Information: © 2010 The authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Sets: Departments > Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 16063
Date Deposited: 16 Apr 2012 13:06
URL: http://eprints.lse.ac.uk/43115/

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