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- Title
Do Natural Disaster Experiences Limit Stock Market Participation?
- Authors
Bharath, Sreedhar T.; Cho, DuckKi
- Abstract
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.
- Subjects
NATURAL disasters; PARTICIPATION; STOCK exchanges; HOUSEHOLDS &; economics; RISK aversion; INVESTMENT risk; DECISION making in investments; UNITED States. Federal Emergency Management Agency
- Publication
Journal of Financial & Quantitative Analysis, 2023, Vol 58, Issue 1, p29
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109022000680