TY - JOUR
T1 - Do Natural Disaster Experiences Limit Stock Market Participation?
AU - Bharath, Sreedhar T.
AU - Cho, Duck Ki
N1 - Publisher Copyright:
© The Author(s), 2022.
PY - 2023/2/9
Y1 - 2023/2/9
N2 - We examine whether natural disaster experiences affect households’ portfolio choice decisions. Using data from the National Longitudinal Survey of Youth 1979, we find that adversely affected households are less likely to participate in risky asset markets. After a disaster shock, households become more risk-averse and lower their expectations on future stock market returns. Such conservative portfolio choices persist even after households relocate to less disaster-prone areas, consistent with risk preferences being altered by disaster experiences. Overall, our evidence suggests that transient but salient experiences can be an important factor in explaining the limited participation puzzle.
AB - We examine whether natural disaster experiences affect households’ portfolio choice decisions. Using data from the National Longitudinal Survey of Youth 1979, we find that adversely affected households are less likely to participate in risky asset markets. After a disaster shock, households become more risk-averse and lower their expectations on future stock market returns. Such conservative portfolio choices persist even after households relocate to less disaster-prone areas, consistent with risk preferences being altered by disaster experiences. Overall, our evidence suggests that transient but salient experiences can be an important factor in explaining the limited participation puzzle.
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U2 - 10.1017/S0022109022000680
DO - 10.1017/S0022109022000680
M3 - Article
AN - SCOPUS:85138618571
SN - 0022-1090
VL - 58
SP - 29
EP - 70
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 1
ER -