Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios




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    • Laurent E. Calvet is with the Department of Finance, HEC Paris. Paolo Sodini is with the Department of Finance, Stockholm School of Economics. We thank the Editor (Campbell Harvey), the Associate Editor, and two anonymous referees for many insightful suggestions. The paper benefited from helpful comments by Manuel Arellano, John Campbell, Jason Chen, Henrik Cronqvist, Marcus Fearnley, René Garcia, Mariassunta Giannetti, Francisco Gomes, Camelia Kuhnen, Pete Kyle, Deborah Lucas, Stefan Nagel, Jacques Olivier, and Stefan Siegel. We also thank seminar participants at Aalto University, Berkeley, CEMFI, Copenhagen Business School, EDHEC, the Einaudi Institute, Erasmus University, ESSEC, the European Central Bank, HEC Paris, London Business School, the London School of Economics, LUISS, Lund University, McGill, the Norwegian Central Bank, the Stockholm School of Economics, Tilburg, Université Paris-Dauphine, the University of British Columbia, the University of Geneva, the University of Lugano, the University of Texas at Austin, the University of Zürich, Warwick Business School, the 2009 conference of the Society for the Advancement of Economic Theory, the 2010 annual meeting of the American Economic Association, the 2010 conference of the International Society for Business and Industrial Statistics, the 2010 Econometric Society World Congress, the 2010 Swedish Institute for Financial Research Conference on Biology and Finance, and the 2011 Helsinki Finance Summit. We are especially grateful to Statistics Sweden and the Swedish Twin Registry for providing the data. Krister Ahlersten and Tomas Thörnqvist provided excellent research assistance. Financial support from the Agence Nationale de la Recherche, the HEC Foundation, Riksbank, the Swedish Bank Research Foundation, and the Wallander and Hedelius Foundation is gratefully acknowledged.


This paper investigates risk-taking in the liquid portfolios held by a large panel of Swedish twins. We document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Human capital, which we estimate directly from individual labor income, also affects risk-taking positively, while internal habit and expenditure commitments tend to reduce it. Our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences. Furthermore, heterogeneous risk sensitivities across investors help reconcile individual preferences with representative-agent models.