Do Natural Disaster Experiences Limit Stock Market Participation?
Sreedhar T. Bharath, DuckKi Cho
Abstract
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.
Topics & Concepts
Natural disasterPortfolioStock (firearms)SalientShock (circulatory)Asset (computer security)Stock marketAffect (linguistics)BusinessEconomicsFinancial economicsActuarial scienceGeographyPsychologyMeteorologyComputer scienceArchaeologyCommunicationContext (archaeology)MedicineInternal medicineComputer securityAgricultural risk and resilienceInsurance and Financial Risk ManagementFlood Risk Assessment and Management