Locus of Control and Investment in Risky Assets

We show that household heads with a strong internal economic locus of control are more likely to hold equity and hold a larger share of equity in their investment portfolio. This relation holds when we control for economic preferences and possible confounders such as nancial literacy, overcon dence, optimism, trust, and other personality traits. We argue that this relation is driven by a link between internal economic locus of control and a lower perception of the risk of investing in equity. Those with a strong internal economic locus of control perceive less variance in equity, making these investments more attractive.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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