Women and Risk: An Analysis of Attitudes and Investment Behavior
Coleman, Susan, Academy of Accounting and Financial Studies Journal
This article compares attitudes toward risk and willingness to hold risky assets by male and female-headed households using data from the 1998 Survey of Consumer Finances. According to self-reported data, women expressed a higher level of risk aversion; almost 50 percent indicated that they were not willing to take any financial risks. Further, when investment behaviors were examined, women over 40 years of age held a significantly lower percentage of risky assets than men. Controlling for education and wealth, however, there were no differences between women and men over 40 in terms of their willingness to hold stocks and stock mutual funds.
Finance theory teaches that there is a tradeoff between risk and return. The greater the risk, the greater the return demanded by investors (Lintner, 1965; Sharpe, 1964). Portfolio theory also suggests that although individual investments may be risky on a stand-alone basis, they are less so within the context of a diversified portfolio wherein well-performing investments can offset poor performers (Markowitz, 1 952). The obj ective is to assemble a well constructed portfolio as opposed to trying to hit the jackpot with individual investments.
Prior research suggests that women are more risk averse as investors than men. Thus, they are less likely to select riskier types of investments that might provide higher returns. Similarly, their personal portfolios are relatively undiversified being heavily weighted with low risk, low return types of investments. If this is true, it has serious implications for the types of returns that women can expect to receive and also for their personal wealth, both present and future.
This article will use the 1998 Survey of Consumer Finances to compare attitudes toward risk and types of investments made by women and men in order to determine if women report a higher level of risk aversion, and, if they, in fact, tend to invest less in risky types of assets. Expressed attitudes toward risk are one thing, while actual behaviors are another. Investors may or may not behave in a fashion that is consistent with their self-professed attitudes and beliefs.
The article is organized into five sections of which this is the first. The second section includes a review of prior research and findings relative to women's investment behavior. The third section describes the sample including univariate results and a description of the multivariate models. Section 4 provides multivariate results, and Section 5 includes a discussion of the findings as well as directions for further research. The unique contribution of this research is that it demonstrates that women's expressed attitudes toward risk do not necessarily translate into more risk averse investment behavior. Younger women were just as likely to hold risky assets as younger men. This research does demonstrate, however, that more mature women were less willing to hold risky assets than mature men, although, controlling for education and wealth, they did hold the same level of stocks and stock mutual funds.
WOMEN AND RISK: PRIOR RESEARCH
Although a considerable amount of research has been done on attitudes toward risk (Cohn et al, 1975; Monti & Suarez, 1983; Riley & Chow, 1992), relatively little has been done on gender differences and their implications for investment behavior. The work that has been done, however, seems to point to greater risk aversion on the part of women investors and, correspondingly, to more conservative investment choices.
In a study of defined contribution pension plans, Bajtelsmit and VanDerhei (1 997) found that women were more likely to invest in fixed income alternatives and less likely to invest in stock Similarly, Hinz et al. (1997) found that a large percentage of women invested in the minimum risk portfolio available when given a range of pension alternatives. Usingthe 1989 Survey of Consumer Finances, Jianakoplos and Bernasek (1998) found that single women held a lower percentage of risky assets than single men or married couples. …