“Molecular Genetics, Risk Aversion, Return Perceptions, and Stock Market Participation”, 2020-08-01 ():
We show that molecular variation in DNA related to cognition, personality, health, and body shape, predicts an individual’s equity market participation and risk aversion.
Moreover, the molecular genetic endowments predict individuals’ return perceptions, most of which we find to be strikingly biased.
The genetic endowments also strongly associate with many of the investor characteristics (eg. trust, sociability, wealth) shown to explain heterogeneity in equity market participation.
Our analysis helps elucidate why financial choices are heritable and how genetic endowments can help explain the links between financial choices, risk aversion, beliefs, and other variables known to explain stock market participation.
…Using a large panel data set from the Health and Retirement Study that includes financial, psychosocial, demographic, and genetic data for 5,130 individuals across time, we examine the role of specific genetic endowments in financial decisions. We focus on 8 genetic endowments related to cognition (Educational Attainment and General Cognition), personality (Neuroticism and Depressive Symptoms), health (Myocardial Infarctions and Coronary Artery Disease) and body type (Height and BMI) and examine how these endowments help shape observed heterogeneity in financial decisions.
…Consistent with our hypotheses, individuals with higher genetic endowments associated with Educational Attainment, General Cognition, and Height are more likely to invest in equity markets (and in addition invest a larger fraction of their wealth in risky assets) while individuals with higher genetic scores associated with Neuroticism, Depressive Symptoms, Myocardial Infarction, Coronary Artery Disease, and BMI exhibit lower equity market participation. Moreover, the effect sizes are substantial—a one standard deviation higher genetic endowment for Neuroticism predicts a 3.7% lower probability of holding any equity…we find that most of the 8 genetic endowments continue to predict equity market participation choices on their own. For example, after controlling for risk aversion and beliefs, a person with a one standard deviation larger genetic endowment for Neuroticism is still 2.8% less likely to hold any equity (as compared to 3.7% before controlling for risk aversion and beliefs).