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Journal of Finance

Genetic Variation in Financial Decision–Making

Journal Article
Cesarini, David, Magnus Johannesson, Paul Lichtenstein, Örjan Sandewall and Björn Wallace (2010). “Genetic Variation in Financial Decision–Making”. Journal of Finance 65(5), 1725–1754.

David Cesarini, Magnus Johannesson, Paul Lichtenstein, Örjan Sandewall, Björn Wallace

Individuals differ in how they construct their investment portfolios, yet empirical models of portfolio risk typically account only for a small portion of the cross-sectional variance. This paper asks whether genetic variation can explain some of these individual differences. Following a major pension reform Swedish adults had to form a portfolio from a large menu of funds. We match data on these investment decisions with the Swedish Twin Registry and find that approximately 25% of individual variation in portfolio risk is due to genetic variation. We also find that these results extend to several other aspects of financial decision-making.