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Risk aversion and wealth: evidence from person-to-person ...

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By d paravisini · 2011 · cited by 219 — using imputed net worth as a proxy for wealth in the cross section of ... if we repeat this test investment-by-investment, the null ...
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Risk Aversion and Wealth:Evidence from Person-to-Person Lending Portfolios ∗Daniel Paravisini Veronica Rappoport Enrichetta RavinaColumbia GSB, NBER, BREAD Columbia GSB Columbia GSBJune 27, 2011AbstractWe estimate risk aversion from the actual financial decisions of 2,168 investors in LendingClub (LC), a person-to-person lending platform. We develop a methodology that allows us toestimate risk aversion parameters from each portfolio choice. Since the same individual makesrepeated investments, we are able to construct a panel of risk aversion parameters that we useto disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specificrisk aversion to changes in wealth. In the cross section, we find that wealthier investors aremore risk averse. However, using changes in house prices as a source of variation, we findthat investors become more risk averse after a negative wealth shock (decreasing relative riskaversion). These preferences consistently extrapolate to ...