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  • Can cultural differences explain heterogeneity in financial precautionary behavior? We study if culture affects portfolio choice via differences in perceived uninsurable risk. Specifically, we investigate if individuals who have more trust in other individuals as well as in public institutions differ in financial precautionary behavior because they have distinct state contingent beliefs; more trusting households rely more on informal and formal sources of risk sharing in financial distress. While earlier research focused on variations of trust in other individuals as an unconditional belief to explain investments in risky assets, our investigation focuses on portfolio liquidity. In our empirical analysis, we apply the Epidemiological Approach to isolate the influence of culture and (endogenous) institutions on financial decisions using non-anonymized information on country of birth in the Household Finance and Consumption Survey (HFCS). As home ownership decisions have profound reflections in household portfolios, we put particular emphasis on housing tenure choices. Our findings indicate that trust in public institutions decreases net liquid wealth, i.e. pre-cautionary savings. However, trust in other individuals increases it (due to reciprocity). Moreover, both types of trust associate positively with the probability to take on financial risk for the purpose of becoming a home owner as well as the related loan-to-value ratio. These results are robust across a range of econometric controls and specifications. (xsd:string)
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  • https://www.jofleck.com/publication/culture_assets/culture_assets.pdf. (EVS) (xsd:string)
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  • 2019 (xsd:gyear)
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  • 2019 (xsd:gyear)
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  • Culture and Portfolios: Trust, Precautionary Savings and La Dolce Villa (xsd:string)
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  • European Values Study (EVS) (xsd:string)
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