Locus of control and investment in risky assets

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Abstract

Using representative household panel data, we show that the investment behavior of households is related to the economic locus of control of household heads. A household's internal locus of control in economic issues is positively related to its decision to hold risky assets as well as its share of risky investments. We find evidence that these relations are due to a lower perception of the risk of investing in risky assets: Those who have an internal economic locus of control perceive less variance in risky assets, which makes these assets more attractive. The relation between investment
in risky assets and locus of control cannot be explained by risk and time preferences or by personality traits such as optimism and the Big Five traits. Furthermore, the relation is independent of household socioeconomic background in terms of wealth or knowledge-- it holds for sophisticated and unsophisticated households alike.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
DOIs
Publication statusPublished - 1 Jan 2013

Publication series

SeriesGSBE Research Memoranda
Number052

Cite this

Salamanca, N., de Grip, A., Fouarge, D., & Montizaan, R. M. (2013). Locus of control and investment in risky assets. Maastricht University, Graduate School of Business and Economics. GSBE Research Memoranda, No. 052 https://doi.org/10.26481/umagsb.2013052