The focus of this paper is on whether the 2007-2008 financial crisis had an effect on an individual or household’s level of financial risk aversion. Most previous studies have solely focused on one aspect and its effect on financial risk aversion but very few have focused on how financial risk aversion changes over time. Determining this is extremely important for financial advisors who have fiduciary responsibilities to their clients, a key part of this responsibility is knowing the clients ability ride the highs and lows of the financial market. This is measured by a clients risk aversion. This paper hypothesizes that the financial crisis will cause a change in tastes and preferences leading to the level of financial risk aversion increasing in individuals and households. The data for the empirical work comes from the Survey of Consumer Finances from the 2007-2009 panel set. The survey contains a question on risk aversion measuring it in an ordinal framework.
This study finds evidence that indeed individual and household risk aversion has significantly changed since before the financial crisis. However there is no true test so 3 individual test are used to try and capture the effect and significance of the financial crisis and its change to household risk aversion. Overall the financial crisis is positive and significant meaning households and individuals are more risk averse after the 2007-2008 financial crisis.
Graff, Jacob A., "Household Risk Aversion: Analysis Pre and Post Financial Crisis" (2017). Senior Independent Study Theses. Paper 7618.
Finance and Financial Management
Financial Risk, Risk Management, Risk Aversion, Financial Crisis
Bachelor of Arts
Senior Independent Study Thesis
© Copyright 2017 Jacob A. Graff