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Journal of Family and Economic Issues

, Volume 32, Issue 3, pp 532–544 | Cite as

Do Market Returns Influence Risk Tolerance? Evidence from Panel Data

  • Rui YaoEmail author
  • Angela L. Curl
Original Paper

Abstract

This study used the 1992–2006 waves of the Health and Retirement Study (HRS) to investigate changes in risk tolerance levels over time in response to stock market returns. Findings indicate that risk tolerance tends to increase when market returns increase and decrease when market returns decrease. Individuals who change their risk tolerance in this manner are likely to invest in stocks when prices are high and sell when prices are low. Researchers, employers, financial educators and practitioners should help investors overcome the bias of overweighting recent news of market performance.

Keywords

Cognitive bias Health and Retirement Study Longitudinal study Multilevel analysis Risk tolerance 

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Department of Personal Financial PlanningUniversity of MissouriColumbiaUSA
  2. 2.School of Social WorkUniversity of MissouriColumbiaUSA

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