Research Details

Abstract

We estimate risk aversion from investors’ financial decisions in a person-to-person lending platform. We develop a method that obtains a risk aversion parameter from each portfolio choice. Since the same individuals invest repeatedly, we construct a panel dataset that we use to disentangle heterogeneity in attitudes towards risk across investors, from the elasticity of risk aversion to changes in wealth. We find that wealthier investors are more risk averse in the cross section, and that investors become more risk averse after a negative housing wealth shock. Thus, investors exhibit preferences consistent with decreasing relative risk aversion and habit formation.

Type

Article

Author(s)

Enrichetta Ravina, Daniel Paravisini, Veronica Rappoport

Date Published

2016

Citations

Ravina, Enrichetta, Daniel Paravisini, and Veronica Rappoport. 2016. "Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios". Management Science.(2): 279-297.