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Formative Experiences and Portfolio Choice: Evidence from the Finnish Great Depression

SAMULI KNÜPFER, ELIAS RANTAPUSKA, MATTI SARVIMÄKI

The Journal of Finance · 2017 · Volume 72 · Issue 1

DOI: 10.1111/jofi.12469

Abstract

We trace the impact of formative experiences on portfolio choice. Plausibly exogenous variation in workers’ exposure to a depression allows us to identify the effects and a new estimation approach makes addressing wealth and income effects possible. We find that adversely affected workers are less likely to invest in risky assets. This result is robust to a number of control variables and it holds for individuals whose income, employment, and wealth were unaffected. The effects travel through social networks: individuals whose neighbors and family members experienced adverse circumstances also avoid risky investments.

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