Risk attitude and Investment Decisions across European ... · Project funded under the...

Project funded under the Socio-economic Sciences and Humanities

European Commission

Working Paper D.6.2

Risk attitude and Investment Decisionsacross European Countries−Are women moreconservative investors than men?

Oleg Badunenko, Nataliya Barasinska and Dorothea Schäfer

Berlin

6 March 2009

Badunenko, Barasinska, Schäfer: Are women more risk averse investors than men? 2 / 30

The gender stereotype

� Women invest their asset portfolios more conservatively thantheir mail counterparts,

� women are less likely to invest in risky assets,

� those who invest, allocate a smaller portfolio fraction than

� Di�erences in investment behavior are the result of inherent

gender-speci�c di�erences in risk preferences.

Empirical evidence that backs up the gender stereotype: Bajtelsmit

et al. (1996), Jianakoplos et al. (1998), Dwyer et al. (2002),

Hartog et al. (2002), Fellner et al. (2007) and others.

Financial Systems, E�ciency and Stimulation of Sustainable Growth Working Paper D.6.2

The gender stereotype

� Women invest their asset portfolios more conservatively thantheir mail counterparts,

� women are less likely to invest in risky assets,

� those who invest, allocate a smaller portfolio fraction than

� Di�erences in investment behavior are the result of inherent

gender-speci�c di�erences in risk preferences.

Empirical evidence that backs up the gender stereotype: Bajtelsmit

et al. (1996), Jianakoplos et al. (1998), Dwyer et al. (2002),

Hartog et al. (2002), Fellner et al. (2007) and others.

Shortcomings of the existing evidence

� in most cases researchers do not have direct information on

the risk attitudes of individuals,

� experimental studies employ small samples and speci�c

designs;

� most evidence from large-scale studies comes from the United

States.

designs;

States.

designs;

States.

designs;

States.

Aims of the present study

� can the gender stereotype be con�rmed by survey-based dataoutside the U.S.?

� are women less likely to invest in risky �nancial assets than

� do women allocate a smaller share of wealth to risky assets

than men?

� if the di�erences between men and women are con�rmed, can

they be attributed to gender di�erences in risk aversion?

� what is the role of professional experience for investment

decisions by men and women?

than men?

Austria Cyprus Germany Italy Netherlands

Survey LWS LWS SOEP LWS DNB HouseholdSurvey

Year of survey 2004 2002 2004 2004 2004

N obs. 2556 895 13005 8012 1097

� representative surveys of private households

� information on whether a household owns risky assets and how muchmoney is invested

� information on self-reported risk aversion of households' heads

Unit of observation is a self-declared household head

� individual-speci�c information (e.g. age, education, riskaversion) refers to household heads,

� income and asset holdings are de�ned as the sum ofearnings and asset holdings of all household members,

Following Guiso et al. (2002), �nancial assets are classi�ed into:

Safe Assets

� current accounts,

� bank saving accounts.

Risky Assets

� corporate and government bonds,

� stocks held directly,

� investments to mutual funds.

An owner of risky assets is who invests more than > 100 Euro in either of asset

classes.

Risk Aversion in this study is measured as

� a self-perceived willingness to take �nancial risks,

� assessed by individuals on an ordinal scale...

Data � Measurement of Risk Aversion

Country Question

Austria �I prefer safe investments and avoid risk in investments�

1 = completely disagree, ... , 4 = completely agree

Cyprus �I am willing to take...�

1 = substantial �nancial risks, ... , 4 = no �nancial risks

Germany �Willingness to take risk in �nancial matters�

0 = not willing to take risks, ... , 10 = willing to take risks

Italy �I prefer ...�

1 = very high return regardless of risk, ... , 4 = low return, without risk

Netherlands �I am prepared to take the risk to lose if there is a chance of gain�

1 = totally disagree, ... , 7 = totally agree

Data � Standardized variable Risk Aversion

Values

1 = low risk aversion

2 = below average risk aversion

3 = average risk aversion

4 = high risk aversion

Distribution of individuals by risk aversion

1a. Are women less likely to invest in risky �nancial assets

than men?

Fraction of males and females investing inrisky assets

1b. Can the observed di�erences be attributed to gender

di�erences in risk aversion?

Hypothesis 1: Di�erences in individuals risk

aversion explain the variation in theprobability of holding risky assets

Pr(risky assets = 1) = f(Risk Aversion + control variables)

� separate estimation for the sub-samples of males and females,

� Logit Regression Model,

� Maximum Likelihood Estimation.

Hypothesis 1 � Estimation results

Males Females

Low Risk Aversion 0.310*** 0.191***

(0.019) (0.035)

Below average Risk Aversion 0.196*** 0.208***

(0.011) (0.019)

Average Risk Aversion 0.120*** 0.113***

(0.008) (0.014)

other control variables ...

Pseudo-R2 0.112 0.089

Nobs 10598 4584

Control variables: ln(Income), Savings, Real Property, Employed,

Self-Employed, University, Age, Age2, Single, Nchildren, Npersons, Professional,

Stock Market Capitalization to GDP.

Hypothesis 1 � Predicted probability ofowning risky assets

1b. Can the observed di�erences be attributed to gender

di�erences in risk aversion?

The observed tendency that women are less likely to invest in risky

�nancial assets can not be fully explained by self-declared risk

aversion.

� ⇒ gender di�erences in participation are driven by other

factors than risk aversion, or

� ⇒ Self-declared risk aversion does not re�ect the true risk

preferences.

2a. Do women systematically allocate a smaller share of their

�nancial wealth to risky assets than men?

� �nancial wealth is the amount held in current and saving

accounts, bonds and stocks.

2a. Do women systematically allocate a smaller share of their

�nancial wealth to risky assets than men?

� �nancial wealth is the amount held in current and saving

accounts, bonds and stocks.

Average (median) share allocated to riskyassets

2b. Do women and men with equal risk aversion hold equal

portfolio shares of risky assets, ceteris paribus?

Hypothesis 2: C.p., women and men withequal risk aversion hold equal shares of riskyassets

Share of risky assets = f(Risk Aversion + control variables)

� Tobit Regression Model.

Hypothesis 2: C.p., women and men withequal risk aversion hold equal shares of riskyassets

Share of risky assets = f(Risk Aversion + control variables)

� Tobit Regression Model.

Hypothesis 2 � Estimation results

Males Females

Low Risk Aversion 0.284*** 0.211*

(0.052) (0.106)

Below Average Risk Aversion 0.220*** 0.275***

(0.026) (0.046)

Average Risk Aversion 0.157*** 0.144***

(0.020) (0.033)

other control variables...

Pseudo-R2 0.21 0.21

Ncensoredobs. 4862 2396

Nuncensored obs. 2461 1474

Control variables: ln(Income), Savings, Real Property, Employed,

Self-Employed, University, Age, Age2, Single, Nchildren, Npersons, Professional,

Stock Market Capitalization to GDP.

Predicted portion of wealth invested in riskyassets

2b. Do women and men with equal risk aversion hold equal

portfolio shares of risky assets, ceteris paribus?

� For average values of wealth and income, women are predicted

to hold a higher share of risky assets than men.

� What are the shares for other levels of wealth and earnings?

3. Can gender di�erences in �nancial behavior be observed in

a sub-sample of highly quali�ed individuals working in

�nancial services industry?

Hypothesis 3: There are no genderdi�erences in investment behavior ofprofessionals

� Sample size: ≈ 200 observations (≈ 1% of the total sample)

� The e�ect of gender on the probability of investing in riskyassets is estimated in a logit regression model

� ⇒ no signi�cant e�ects of gender on the probability of

investing in risky assets were found.

� Analysis of allocation decision not possible: only 38 individuals

report shares invested

Concluding remarks

� the gender stereotype can be con�rmed only partially,

� the observed gender di�erences can not be explained by stated

risk aversion,

� especially in case of women, the declared attitude toward

�nancial risks does not necessarily re�ect the actual willingness

to bear risks.

Hypothesis 3: Regression analysis �E�ects of gender on probability to invest inrisky assets

Coe�. St.Dev.

Sex 0.951 (0.582)

Risk Aversion �low� 0.581 (1.139)

Risk Aversion �below average� 0.737 (0.826)

Risk Aversion �average� 0.431 (0.783)

other control variables ...

Pseudo-R2 0.20

a) all individuals

b) individuals who own risky assets

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