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Neighborhood Effects and Asset Allocation



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Neighborhood Effects and Asset Allocation October 18 2008 James Chong James P Dow Jr G Michael Phillips Dept of Finance Real Estate Insurance California State University Northridge Previous research has shown racial ethnic effects in asset allocation We extend these results by showing how these effects depend on the racial composition of the neighborhood In particular we show that in predominately white neighborhoods there are significant differences in asset allocations across racial groups however in mixed or white minority neighborhoods this difference disappears We also find that Asians a previously understudied group show a greater willingness to hold risky assets compared with other groups Corresponding author James Chong Department of Finance Real Estate Insurance California State University Northridge 18111 Nordhoff Street Northridge CA 91330 8379 Tel 818 677 4613 Email james chong csun edu 1 1 Introduction It has been argued that financing decisions made by households can depend on the environment that they live in and the social networks that they make Hong et al 2004 Ivkovi and Weisbenner 2007 Brown et al 2008 We look at one aspect of this sociology of financial decision making by examining the effect of where an individual lives on their investment decisions In particular we examine empirically how the race of the individual interacts with the racial mixture of the surrounding neighborhood in determining the asset allocation To do so we use the 2007 EASI Master Database which aggregates data from the Consumer Expenditure Survey to the zip code level and provides both demographic and financial information about the neighborhood Previous research has found that African Americans households tend to be more conservative investors and hold smaller amounts of their financial wealth as risky assets such as stocks Dow 2008 Choudury 2001 2002 Wang and Hanna 1997 We extend these results by showing how these racial effects depend on the racial composition of the



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