Does childhood adversity affect household portfolio decisions? Evidence from the Chinese Great Famine

Zhiming Cheng, Russell Smyth, Le Zhang*

*Corresponding author for this work

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Abstract

We employ the 1959–1961 Chinese Great Famine as a quasi-natural experiment to examine the relationship between experiencing adversity in childhood and financial decisions in adulthood. Using data from the 2017 China Household Finance Survey and the intensity of excess deaths during the Great Famine, results from our preferred two-part fractional regression model suggest that, for an additional excess death per thousand people during the Famine, cohorts who were in their infancy and early childhood during the Famine are 0.2–0.3 percentage points less likely to hold risky financial assets than other cohorts. We also find that, conditional on the decision to hold risky assets, those who experienced an additional excess death per thousand people during the Famine in their middle to late childhood hold 1.1 percentage points higher share of risky assets in their household financial portfolios than those who did not experience the Famine. We explore several potential mechanisms and find that financial literacy, risk-taking preferences and locus of control are channels through which childhood adversity in the famine years affects household portfolio decisions. Our findings are robust to a series of sensitivity checks.
Original languageEnglish
Article number102227
Pages (from-to)1-27
Number of pages27
JournalChina Economic Review
Volume87
DOIs
Publication statusPublished - Oct 2024

Bibliographical note

© 2024 The Author(s). Published by Elsevier Inc. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

  • Childhood adversity
  • Famine
  • Household portfolio
  • Risk-taking

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