Personal Early Experience and Household Investment on Risky Financial Assets: An Empirical Analysis Based on the “Going Up to the Mountains and Down to the Countryside” Movement in China
ZHOU Guangsu, BIAN Xiaoyu, WU Qingjun
School of Labor and Human Resources, Renmin University of China; Department of Economics, The Chinese University of Hong Kong
Summary:
According to data from the China Securities Depository & Clearing Statistical Yearbook, as of the end of 2016, registered natural investors accounted for 99.85% of all investors. The proportion of elderly investors had also steadily increased, exceeding 10%. This phenomenon is worthy of researchers' attention. Different from young and middle-aged investors, most elderly investors have low risk tolerance, and they will suffer great negative impacts on their pension assets and health status once they encounter problems with financial risk. The above is not only directly related to residents' asset security and everyday stability but also concerns the healthy development of the capital market in China. The literature analyzes the issue from the perspectives of the personal characteristics of investors and the economic and social environment. This paper concludes that investors' experiences during adolescence may have a significant impact on their future venture capital investment. Psychological research points out that an individual's early life experiences have long-term effects on their behavior (Kendler et al., 2002), especially catastrophic experiences, which can cause personal psychological trauma. Early life experiences affect people's long-term risk perceptions, personal preferences, and beliefs (Shi Kan, 2010), all of which are closely related to individuals' behavioral decisions. Household risky financial assets investment is an important financial decision. It is directly related to individual psychological factors, such as risk awareness and risk appetite. Therefore, this paper concludes that individuals' early experiences affect their future household risky financial investment. However, there is a lack of quantitative research on this issue . This paper uses micro-data from the 2010 China Family Panel Studies to match financial asset investment data at the household level with personal data from the Going up to the Mountains and Down to the Countryside experience. Furthermore, it adopts fuzzy regression discontinuity method (Fuzzy RD) to estimate impacts of the Going up to the Mountains and Down to the Countryside experience on investment in family risky financial assets. The estimation results show that the experience significantly increases the probability of household investment in financial assets and the corresponding investment scale. The probabilities of households with such experience participating in stock investment and general risky financial assets are 50.4% and 53.7%, higher than those of the households without such experience, respectively. As for scales of stock investment and general risky financial assets investment, people with the experience is higher than those without it by 5.9% and 5.7%, respectively. Finally, the sub-sample heterogeneity discussion shows that the positive impact of the experience on family investment in risky financial assets is more obvious among well-educated, high income, and high social capital demographic groups. This paper makes contributions in at least three aspects. First, it uses for the first time survey data at the household level (collected from Chinese families) to explore the impacts of the Going up to the Mountains and Down to the Countryside experience on investment decisions involving family risky financial assets. Second, this paper uses Fuzzy RD to minimize the bias of the estimation results caused by the potential endogeneity problems that may exist in the key variable, the Going up to the Mountains and Down to the Countryside experience. Third, it explores two possible mechanisms that prove that the Going up to the Mountains and Down to the Countryside experience affects family investment behavior by influencing risk appetite of investors and per capita income of family. This paper's conclusions indicate that early personal experience has a certain impact on the development of personal characteristics, which affect people's future economic decisions. Analysis from this perspective provides a new perspective for understanding the special structure of participants in China's stock market and provides a new entry point for understanding the investment behavior of individual investors. Therefore, to enhance the effectiveness of the policy, it is necessary to consider personal characteristics, common experiences, and specific histories of people when formulating relevant policies.
周广肃, 边晓宇, 吴清军. 上山下乡经历与家庭风险金融资产投资——基于断点回归的证据[J]. 金融研究, 2020, 475(1): 150-170.
ZHOU Guangsu, BIAN Xiaoyu, WU Qingjun. Personal Early Experience and Household Investment on Risky Financial Assets: An Empirical Analysis Based on the “Going Up to the Mountains and Down to the Countryside” Movement in China. Journal of Financial Research, 2020, 475(1): 150-170.
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