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The effect of psychological and biological factors on financial choices

The effect of psychological and biological factors on financial choices
The effect of psychological and biological factors on financial choices
The purpose of this thesis is to investigate the effect of psychological and biological factors on personal and household financial choices, which include asset allocation, wealth accumulation, pereference heterogeneity, and particular financial behaviours.

The psychological factors include cognitive abilities and personality traits. The first paper (Chapter 2) studies the effect of cognitive abilities on household portfolio choice with respect to assets shares and diversification. I use survey data from the Health and Retirement Survey (HRS) and English Longitudinal Survey of Aging (ELSA), which measure cognitive abilities, wealth composition, and detailed demographic information on aging populations in the US and the UK, respectively. I find that cognition is negatively associated with the percentage of investment in safe assets, but positively associated with the share of financial assets in retirement accounts. For households with low and median levels of financial wealth, these relationships are uniformly significant. However, the results do not support cognition as a predictor of the proportion of investments in risky assets. In addition, cognitive abilities are positively associated with the level of asset portfolio diversification. I discuss several possible explanations for why individuals engage in this portfolio shifting strategy and provide some practical implications.

The second paper (Chapter 3) investigates the effects of perfectionism on tolerance of financial risk and on wealth accumulation, and explores the possible channels through which these effects occur. Perfectionism encompasses two essential facets: strivings and evaluative concern. Financial risk tolerance is a subjective function of the financial risk that an investor can accept. I implement a cross-sectional study with an online survey sampling of 661 US residents. First, perfectionistic striving is positively associated with financial risk tolerance, but perfectionistic concerns have no impact on financial risk tolerance. Second, the positive link between perfectionism striving and financial risk tolerance is consistent in different demographic subgroups, based on gender, aging, religion, and marital status. Third, perfectionistic striving (concern) positively (negatively) predicts liquid wealth mediated by investment knowledge. Furthermore, investment knowledge, and investment knowledge followed by liquid wealth are two channels through which striving and evaluative concern affect risk tolerance. Finally, perfectionistic concerns inhibit gambling expenditures. This study extends the understanding of the influence of perfectionism on individual financial well-being.

Circadian rhythm is the 24 hour-cycle biological process of living beings. The third paper (Chapter 4) examines the effect of chronotype on delinquent credit card payments and stock market participation through preference channels. Using an online survey of 455 individuals who have been working for 3 to 8 years in companies in mainland China, the results reveal that morningness is negatively associated with delinquent credit card payments. Morningness also indirectly predicts delinquent credit card payments through time preference, but this relationship only exists when individuals` monthly income is at low to average level. On the other hand, financial risk preference accounts for the effect of morningness on stock market participation. Consequently, an additional finding is that morningness is positively associated with financial risk preference, which contradicts previous findings in the literature. Finally, based on the empirical evidence, I discuss the plausible mechanisms that may drive these relationships and the implications for theory and practice. The current study contributes to the literature by examining the links between circadian typology and particular financial behaviours of experienced workers.
University of Southampton
Wang, Di
a5be5c5c-fc2b-407d-b9e3-09deb416533f
Wang, Di
a5be5c5c-fc2b-407d-b9e3-09deb416533f
Mcgroarty, Francis
693a5396-8e01-4d68-8973-d74184c03072

Wang, Di (2018) The effect of psychological and biological factors on financial choices. University of Southampton, Doctoral Thesis, 208pp.

Record type: Thesis (Doctoral)

Abstract

The purpose of this thesis is to investigate the effect of psychological and biological factors on personal and household financial choices, which include asset allocation, wealth accumulation, pereference heterogeneity, and particular financial behaviours.

The psychological factors include cognitive abilities and personality traits. The first paper (Chapter 2) studies the effect of cognitive abilities on household portfolio choice with respect to assets shares and diversification. I use survey data from the Health and Retirement Survey (HRS) and English Longitudinal Survey of Aging (ELSA), which measure cognitive abilities, wealth composition, and detailed demographic information on aging populations in the US and the UK, respectively. I find that cognition is negatively associated with the percentage of investment in safe assets, but positively associated with the share of financial assets in retirement accounts. For households with low and median levels of financial wealth, these relationships are uniformly significant. However, the results do not support cognition as a predictor of the proportion of investments in risky assets. In addition, cognitive abilities are positively associated with the level of asset portfolio diversification. I discuss several possible explanations for why individuals engage in this portfolio shifting strategy and provide some practical implications.

The second paper (Chapter 3) investigates the effects of perfectionism on tolerance of financial risk and on wealth accumulation, and explores the possible channels through which these effects occur. Perfectionism encompasses two essential facets: strivings and evaluative concern. Financial risk tolerance is a subjective function of the financial risk that an investor can accept. I implement a cross-sectional study with an online survey sampling of 661 US residents. First, perfectionistic striving is positively associated with financial risk tolerance, but perfectionistic concerns have no impact on financial risk tolerance. Second, the positive link between perfectionism striving and financial risk tolerance is consistent in different demographic subgroups, based on gender, aging, religion, and marital status. Third, perfectionistic striving (concern) positively (negatively) predicts liquid wealth mediated by investment knowledge. Furthermore, investment knowledge, and investment knowledge followed by liquid wealth are two channels through which striving and evaluative concern affect risk tolerance. Finally, perfectionistic concerns inhibit gambling expenditures. This study extends the understanding of the influence of perfectionism on individual financial well-being.

Circadian rhythm is the 24 hour-cycle biological process of living beings. The third paper (Chapter 4) examines the effect of chronotype on delinquent credit card payments and stock market participation through preference channels. Using an online survey of 455 individuals who have been working for 3 to 8 years in companies in mainland China, the results reveal that morningness is negatively associated with delinquent credit card payments. Morningness also indirectly predicts delinquent credit card payments through time preference, but this relationship only exists when individuals` monthly income is at low to average level. On the other hand, financial risk preference accounts for the effect of morningness on stock market participation. Consequently, an additional finding is that morningness is positively associated with financial risk preference, which contradicts previous findings in the literature. Finally, based on the empirical evidence, I discuss the plausible mechanisms that may drive these relationships and the implications for theory and practice. The current study contributes to the literature by examining the links between circadian typology and particular financial behaviours of experienced workers.

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Available under License University of Southampton Thesis Licence.
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Published date: May 2018

Identifiers

Local EPrints ID: 422199
URI: http://eprints.soton.ac.uk/id/eprint/422199
PURE UUID: 6cc73288-7ad1-45f3-9a2e-f9a3cc1910ea
ORCID for Di Wang: ORCID iD orcid.org/0000-0002-7621-8669
ORCID for Francis Mcgroarty: ORCID iD orcid.org/0000-0003-2962-0927

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Date deposited: 18 Jul 2018 16:31
Last modified: 28 Aug 2020 04:01

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Contributors

Author: Di Wang ORCID iD
Thesis advisor: Francis Mcgroarty ORCID iD

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