Finance Papers

Document Type

Journal Article

Date of this Version

2010

Publication Source

The Journal of Finance

Volume

65

Issue

5

Start Page

1755

Last Page

1788

DOI

10.1111/j.1540-6261.2010.01593.x

Abstract

Social status concerns influence investors' decisions by driving a wedge in attitudes toward aggregate and idiosyncratic risks. I model such concerns by emphasizing the desire to “get ahead of the Joneses,” which implies that aversion to idiosyncratic risk is lower than aversion to aggregate risk. The model predicts that investors hold concentrated portfolios in equilibrium, which helps rationalize the small premium for undiversified entrepreneurial risk. In the model, status concerns are more important for wealthier households. Consequently, these households own a disproportionate share of risky assets, particularly private equity, and experience greater volatility of consumption, consistent with empirical evidence.

Copyright/Permission Statement

This is the peer reviewed version of the following article, which has been published in final form at http://dx.doi.org/10.1111/j.1540-6261.2010.01593.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

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Date Posted: 27 November 2017

This document has been peer reviewed.