Locus of control and investment in risky assets
AuthorSalamanca Acosta, N; de Grip, A; Fouarge, D; Montizaan, R
Source TitleJournal of Economic Behavior and Organization
University of Melbourne Author/sSalamanca Acosta, Nicolas
AffiliationMelbourne Institute of Applied Economic and Social Research
Document TypeJournal Article
CitationsSalamanca Acosta, N., de Grip, A., Fouarge, D. & Montizaan, R. (2020). Locus of control and investment in risky assets. Journal of Economic Behavior and Organization, 177, pp.548-568. https://doi.org/10.1016/j.jebo.2020.06.032.
Access StatusThis item is embargoed and will be available on 2023-09-01
Internal locus of control is an important personality trait strongly related to many economic outcomes. We show that the probability to own equity and the share of equity in household portfolios increase with people’s internal locus of control. We explore, and find no evidence for, the hypothesis that this relation is driven by a link between internal economic locus of control and subjective expectations about the return and risk of investment in equity. The relation between locus of control and investment in equity also remains after controlling for risk and time preferences, financial literacy, overconfidence, optimism, trust, and other personality traits. We also show that locus of control has a stronger relation with investment in equity for financially illiterate investors. Our results document a strong and robust relation between locus of control and investment behaviour that cannot be explained by leading behavioural investment theories.
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