Immigrant-native differences in stockholding – The role of cognitive and non-cognitive skills

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in AbstractThis paper provides new evidence on native-migrant differences in financial behavior by analyzing the role of noncognitive and cognitive skills. We make use of data from the Health and Retirement Survey (HRS) which is a longitudinal household survey of the older U.S. population containing detailed information about demographic characteristics, financial assets and personality traits of household members. In line with previous studies, we find a substantial gap in stockholding between immigrant and native households. Estimates from a random effects model suggest that cognitive and non-cognitive skills, including personality concepts and economic preferences, are important drivers of stockholding and explain part of the differences between natives and immigrants. These findings are supported by results from a Blinder-Oaxaca decomposition analysis. Our paper therefore delivers first evidence that differences in non-cognitive and cognitive skills contribute to the explanation of the financial market participation gap between natives and immigrants.

Child Health, Human Capital and Adult Financial Behavior

“…In line with the literature, we find non-cognitive skills to determine financial behavior (Hong et al, 2004;Luik and Steinhardt, 2016). According to column 6, an increase of one standard deviation in our standardized self-esteem and locus of control scores results in a 20 significant 1.9 pp increase and 0.8 pp decrease in the likelihood to own risky assets.…”

“…Vissing-Jorgensen (2002) and Calvet and Sodini (2014) confirm the positive theoretical relationship between human capital (discounted future income) and financial risk-taking using U.S. data from the PSID and Swedish register data on twins. Other works affirmed the positive relationship between human capital and financial risk-taking using Cunha and Heckman (2007)'s cognitive (Christelis et al, 2010;Grinblatt et al, 2011;Agarwal and Mazumder, 2013) and/or non-cognitive skills (Hong et al, 2004;Luik and Steinhardt, 2016) 3 , or education (Campell, 2006;Cole et al, 2014).…”

Immigration and the pursuit of amenities

“…Another reason is self‐selection: individuals who have certain traits are more likely to migrate in the first place—for example, they may be more willing to take risks (Jaeger, Dohmen, Falk, & Huffman, 2010). Immigrants and natives may also differ in cognitive and noncognitive traits, such as their planning horizon and perceived constraints (Luik & Steinhardt, 2016).…”

Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment

“…4 These observations are in line with studies on actual stock market behavior. In general people with higher IQ are more likely to trade in stock markets, hold a more diversified portfolio, and achieve higher Sharpe ratios than people with lower IQ, even after controlling for socio-demographic covariates (Korniotis and Kumar 2010;Grinblatt, Keloharju, and Linnainmaa 2011;Luik and Steinhardt 2015). Bruguier, Quartz, and Bossaerts (2010) are among the first to provide evidence that "theory of mind" (ToM) and the ability to forecast prices are correlated.…”