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Which U.S. Households Changed Risk Tolerance During the Great Recession? Evidence from the 2007-2009 SCF Panel Dataset
Short Abstract
This study focuses on how the recent economic shock impacts on a household’s risk tolerance, which plays a salient role in a household’s financial decisions. The panel dataset from the Survey of Consumer Finances (SCF) provides a unique view of the changes in U.S. households’ risk tolerance during the 2007-2009. About 28% of households answered they would take lower level of risk tolerance after the recession. However, 16% of households would take higher level of risk tolerance compared to survey in 2007. As the expected utility theory assumed, 56% of households answered the constant level of risk tolerance over the survey period. In order to test the effect of our selected explanatory variables on the likelihood of being three ordinal categories of changes in risk tolerance, ordered logit regression model will employed for the multivariate analysis. Demographic variables, economic status variables, and some panel variables will be used as significant predictors of the likelihood of variation of risk tolerance.