DP14264 Do Role Models Affect Risk-Taking Behavior? The Case of Minorities

Author(s): Yosef Bonaparte, Sarah Khalaf, George Korniotis
Publication Date: December 2019
Date Revised: February 2020
Keyword(s): asset allocation, PSID, Savings, SCF, Stock ownership, Trading, wealth gap
JEL(s): D14, G11, J15, J16
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14264

We show that social changes, like the success of role models, affects household financial decisions. Specifically, minorities underinvest in equity, which contributes to the widening racial wealth gap. But the election of President Obama in 2008, who is a role model from minorities, is a positive social change that should encourage investing. Indeed, post-2008 and compared to White Americans, minorities, trade more often, have a higher propensity to increase risk tolerance as well as allocations to risky assets and savings, and a lower propensity to exit the market. Overall, we show that societal factors affect the racial stock ownership gap.