Investor Behavior: The Psychology of Financial Planning and Investing

CHAPTER 7

Demographic and Socioeconomic Factors of Investors

James Farrell

Assistant Professor of Finance and Economics, Florida Southern College

INTRODUCTION

Differences in investor behavior are largely due to the heterogeneity of the individual investors. This heterogeneity leads to differences in savings rates, investment decisions, and variations in asset prices. Investors base their decisions on many factors, including their expectations about the future and their risk preferences. This chapter focuses on the relationship between investment outcomes and risk preference as well as investor sociodemographic characteristics.

Researchers have studied many sociodemographic characteristics such as race, gender, marital status, age, education, and wealth to help explain differences in investor behavior. This chapter focuses on explaining the roles of race and gender in investor behavior with the goal of understanding the persistence of the differences even after accounting for characteristics such as wealth, income (both the level and security), and age.

The effects of gender and race on investment preferences have been a focus of economic research. The goal has been to identify what demographic factors affect participants' investment choices regarding risk. Although limited research is available on race as a contributing factor, evidence suggests that it plays an important role and merits further study. Research on the topic typically suggests that men have a higher preference ...