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

Paravisini, Daniel, Rappoport, Veronica and Ravina, Enrichetta (2016) Risk aversion and wealth: evidence from person-to-person lending portfolios. Management Science, 63 (2). pp. 279-297. ISSN 0025-1909

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Identification Number: 10.1287/mnsc.2015.2317

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: Article
Official URL: http://pubsonline.informs.org/journal/mnsc
Additional Information: © 2017 INFORMS
Divisions: Finance
Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: 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
Research centres and groups > Centre for Economic Performance (CEP)
Research centres and groups > Managerial Economics and Strategy Group
Date Deposited: 29 May 2015 10:50
Last Modified: 20 Mar 2019 02:50
Funders: Program for Financial Studies, Program for Financial Studies
URI: http://eprints.lse.ac.uk/id/eprint/62137

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