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GENDER-BASED RISK AVERSION AND RETIREMENT

ASSET ALLOCATION
KATHLEEN ARANO, CARL PARKER and AORY TERRY
This research l!.mmillC!s lI'helher lfOmell "m'e higher risk thtlll men (1,\'
l/eIl/OllSfra/('{/ by fheir reliremefll asset allocation. The llnalysis is extellded to
jlll'es/igml' hal\' relirell/ellf llJ.\'el im'l'.\'Il11ellf (/ecisiolls {lfe lIIade ill married
IlUllse/wld.\'. Illifial I'II.ruItS suggest cOl/trolling Jor demographic. iIlCOll1i'. (lJ/{/wealth
(lifJerel/res lead 10 110 SigllijiNlIII diffaellce ill the proporlioll of relirellll!1II asselS
held ill .\'IOl"ks hel1l'('ell 11'0111£'11 lind lIIali' flu"uIIY. For married 1I01l.'>e1lOld5 wilh
joilll illrl.'ST/lI£'1II det'isiu/l making. results indimle ,hal gender differences are
II sigllijiCClIII facIO/' ill I!Xp/tJillillg illdiritlual retirement al','ier allocmioll. Ollr
e:uilllw(!s imply !lull womell faculty (II'/! more risk (II'erse thall their male spollse.
(JEL J16, GIl. 010)
I. INTRODUCTION
There have been a number of recent studies
that have explored gender-based differences in
retirement asset allocation.! In these st udi es.
rcse;ln:.:hers rely on the assumption that
asset-<;lass risk and risk aversion arc negatively
correlated to draw conclusions regarding dif-
ferences in the risk aversion of women versus
men.
2
If higher ri sk aversion is characteristic
of women and if risk aversion is neg:lIi .... cly
correlated with asset-cl ass ri sk then Ihe eco-
nomic consequence is that \\Ol11en will likely
accumu];lIe less reti remenl wealth. Although
the popular press has voiced the view Ihat
Af/lllo.- Professor of DepM!ment of
Econom1cs and Finance. FOrl SlUte Uni\'efbit y.
600 Park Street. H3}'S. KS 67601. Phone 185·628-4418.
Fa, 785·6284H8. E·rnatl k:mtnOfll th)u.edu
Parka: Professor of Econom·
ies and Fimllwe. FoT[ Ha)'s Stale University. 60(1 Park
Street. Ilays. KS 67601 Phone 785·628·5805. Fall 785-
62S-WIS. E·mail eparkemllh.u,edu
Terry Associate Professor of Finance. Dcp:lTlment of
EconomiQl and Financc. Fort Il a)s Slate UnhersilY.
600 Park Street, Hays. KS 6760 t. Phone 785·62S·5337:
Fax 785·628-4418. E·mall
I. Sec llanhamn. Chapman. :md D<)mi:1l1 (2000).
Bajtcbmlt lind Jianakoplos t 1999). Jianakopl os lind
Bcrrl:lsck (l99S), Sung and Hanna (l996). Sunden and
Surelle (19981. B:LJlclsmit and VanDcrhci (1997). ' -li nl
et al. (2007). and RIle} and Choll (1992). See Ba)tcbmlt
:lIId (1996) for sunnnurics of ,tudies that include
data !let, used and Iheir \Lml\:uions.
2. Schooley and Worden ( 1996. 9.f) find POSi lil!,' cor·
relation bctll"t'Cn lhe reponed \\llIin!nQ,s of in\cstors 10
lakl." ri,k and the reported a<.;cts a, percentage
of IIC:lhh,
Economic Inquiry
(lSSN 0095-2583)
Vul . .f8. No. I. Junuary 2010. 1.f7- 155
''7
women arc more conservat ive inveslors than
men,J Ihe results of recent empirical studies
arc mixed.'"
In general. women tend to have less work
experience than men. to be pari-time workers.
to earn lower wages than men, and 10 choose
jobs that do nOI offer a pension AclU-
arial1y. women live longer than men. If. in
add ilion to these factors. women as a group
invest in less ri sky assets and subsequentl y
accumulate smaller reti rement wealth than
men then two inferences can be made: first.
their annual relirement income should be less
than that of men and. second. proposals 10 pri-
vat ize Social Security should only exacerbate
3. Sec. for ellample. Ro\\ land (1995).
4. ]'upke (1998). <Lnd Schooley and Worden (]996)
report IIIsignifiean\ gender differences In risk ;nersl0n
of men versus women. Rile} and Cho\\ t 1(92) find small
differences In risk alersion based on gender. marital sm·
IUS. llnd nlcc. Sung and Hanna (1996) find that femll!l."·
headed households have lower risk tolerancc. Sunden
and Surette (1998). Jlanakoplos and Bcrnasc:k (1998).
Ihnl. ct al. (2007). :lnd Bajtelsmit and Vano...-rhci (1997)
find that gendcr-bast..'d diITerenc... .... in ri si.. lolerance are sig·
nificant.
5. See U.s. Subcommittcc on Retirement Income and
Employment ( 1992).
,\RBREVIATIONS
DC: Defined Contribution
MPR: Marginal Price of Risk
RRA: Rclallvc Risk Aversion
dui: IU.] 111/j. ]465·7295.2008.00201.:.:
Online publication February 6 2009
CI 2009 We;;tern E!;onoJtlic International
'"
INQLIR'
this retirement income disparity between men
and \\-omen.
The primary purpose of this slud,Y was to
determine whether. as a demographic group.
women arc more risk averse thun men (invest
less of their wealth in ri sky assets). For mar-
ried households. Ihe interaction between
gender and how the spouse a. re-
spondent's retirement assets allocation IS IIke-
wisc investigated. Petersen (1996) notes that
asset allocutions in a defined contribution
(DC) plan should pro:\y for the underlying
fisk tolerance of the individual. In a DC plan.
the participant allocates the funds
among difTerent investment allcrnauvcs. and
the amount of contributions made to the plan.
as well as the performance of the investment
or the participant's "ccount. witl determim:
retirement income (Bajtelsmit and VanDerhel
1997). We .m economic model with
the proportion or unhersity retirem
7
nt runds
in risky asscls as Ihe and
measure whether gender IS a slgmficlint IIlde-
pendent variable aner controlling ror other
theoretically relevant variables. A second model
is estimated to 'lHow ror the interaction or
gender and other va riables. Ihat cap-
lure joint decision maklllg ror. marned h.ouse-
holds. The models arc cstmmtcd with a
unique dala SCI or Kansas or
university raculty that, in uddltlOn to typical
demographic variables. colllains measures ?r
the percentage or retirement assets .held III
stocks. individual and household mcome.
and retirement wealth. The data set also pro-
vides greater homogeneity across individuals.
which can control ror extern,,1 influences on
the investment decision that may otherwi se
be difficult to model. In particular. the occu-
plIIion is the same ror all individUllls and the
S<.lme retirement plan e't isl5 ror all Regents
un1l'ersities. The investmenl in hunl:ln c.1pital
should be somewhat homogeneous across
faculty.
II. THEORETICAL FRAMEWORK
Our primary hypothesis is that if women
arc more risk averse than men thellthey would
be expected to invest a smaller proportion or
their wealth in risky assets. Friend and Blume
(1975) use a Taylor series expansion to define
the proportion of an investor's portrolio
invested in risky assets. a. 10 be:
( I ) ::r. = riskyassets/ weahh
1£{" - 'f l / cr;,III/{ I - r){ l -
h
lRJ
-1!r / (1
\\here r,,, is the return on the markell>Ortrolio,
r, is the return on the assct..
E{r", - r,} is the expected rISk
0"2 is the variance or the market portroito,
E {r .. - r, } / 0;, is the margi"al pricC' of risk
(MPR). assumed conStant,
, is the investor's marginal ta't rate.
" is the human capital/wealth ror the
investor.
........ :r:z Cov{r""r,,}/ u! is the bela or the
human e;lpital,
rio is the return on human capi tal ror
thc investor, and
R = 111-U'(wealth)IU' (wealth)] is the
Prall's measure or rclati\e risk a ... ersion
(RRA),6 with U(1I"(!(/lrlt) as the invcstor's util-
ity function or wealth. .
Fama and Sch\\ert (1977) and Llbcnnan
(1980) show that Ph.n,' \\hen estimated in a
time series. is approximately zero. Therefore.
Equation (I) becomes
(2) ( I - r){ 1 - /r )R> '" MI'R.
Since MPR is assumed constant across
individuals. we sec that for a gi\en individual
\\ilh I and II fixed. R (RRA) and Cln re inversel)
related. In general. we should empirically
obser .... e an inverse relation between the pro-
portion or wealth imested in risky assets
and the RRA across indi\ iduals or groups.
In p'lr1icular, ir women as a group arc more
risk lIverse (have higher levels of RRA) then
they should place a smaller
wealth into ri sky asselS. Alternatively. Ir
women place a smaller proportion or their
wealth into risky assets than do men then
we may inrer that they have higher levels or
RRA than do men.
Becker de\-eloped the theoretical founda-
tion ror extending the lraditional economic
rational choice analysis to incorporate a wider
class or altitudes. prererences, and calcullt-
ti ons. In his analysis, individuuls maximize
welrare as they conceive it. their behavior is
rorward looking and consistent over time,
and their uetions arc limited by income.
6 See Prau (196·11.
ARANO, PARKER & TERRY R[SK AND ASSET ALLOCATION
'49
imperfect memory, calculating capacities, by
opportunities in the economy that are mostly
detennined by individual and collective actions
of other individuals or groups, lmd by OIher
limited resources including time (Becker
1993), Thi:. framework has been applied to
analyze social issues including gender- and
marriagc·bascd diITcrcntial choices in asset
accumulation. skills and education attainment.
ellrning differentials, and other economic
choices, including portfolio choice. Portfolio
theory suggests that utility·maximizing individ-
uals assume varying degrees of risk that are
innucnccd by a number of factors. These
factors include age, wealth, income, marital
status. und education.
A. Age
Age is typically included in models that
estimate the eITeets of demographic variables
on investment decision making. The conven-
tional wisdom of the fin.weial planning
industry is that investors reduce the propor-
tion of Iheir assetS held in risky investments
<IS they ncar retirement, presumably under
the assumption that they lack sufficient
remaining working years to recover from
a large investment setback. Malkiel
7
advises
"more common stocks for individuals earlier
in the life cycle and more bonds for those
nea rer retirement." Differences in the pla n-
ning period are proxied by age and .He fre·
quently included in studies that ex'lmine
the issue of risk aversion. Recent studies
based on multivariate regression analysis tha t
included age have had mixed findings. Morin
and Suarez (1983) llnd Bakshi and Chen
(1994) find that risk aversion and age are pos·
iti\'ely correlated. HO\\'ever. Wang and Hanna
(1997) find that the proportion of wealth held
as risky assets is positively correlated with age.
Ri ley and Chow (1992) find that risk lIversion
decreases with age until 65 yr and then
increases. These studies suggest that the rel:l-
tion between the proportion of risky assets
held and investor age n1<ly be complex and
sample dependent.
B. Wealth
Arrow (1965) hypothesized that did W
1-U'(110/U'(W)) < ° and d/d Il1-1V((!'(l VJI
7. See Malkle1 (\990. 350).
U'[IJI!)] = dR[If/]/dW > O. In other words,
absolute risk aversion should be decreasing
in wealth. while RRA should be increasing
in wealth. In contrast. we hypothesiLe that
investors with greater risk nversion take more
conservative investments. which leads to
smaller accumulated wealth (dR! 1I11d W) < O.
Empirical evidence on the relation between
RRA and wenlth is mixed.
g
In the Theory sec·
tion. we have focused on RRA. R[ IV] =
- W(U"[ JII]/U'(JII) and we hypothesized ear-
lier that a[W] ::::: kIR[JII]. where k = MPRI
(I - tHI - 11).9
A first-order Tnylor series exp.msion of the
above rehllion about IV = 0 gi\'es :x[ IV] = (kl
RIO)) - Ik R'IO)I RIO)') IV + OW'). If 'he sam-
ple being analyzed displays increasing
(decreasing) RRA (R'[W] > 0). we would
expect a negative (positive) coefficient on
wealth. Empiricall y. unless the demographic
group in question has homogeneous behavior
of R' [III), a regression of Wagainst ::t could
lead 10 a weak coefficient of either sign. It
is unclear whether n second-order wealth
term is required or theoretically justified-
what si
9
n it should take and how to interpret
its sign. 0
We have hypothesized that women, as
a demographic group, are more risk averse
than men. This means that, as a group,
RpVl is higher (a. lower) for women than for
men. However. our hypothesis says nothing
about any diITerenees in R'[IV] between
women and men.
Consequently, we make no a priori predic-
tion about either the sign or the magnitude of
a welilth coefficient or of differences in the
coefficient betwecn women and men. Never-
theless. including the term allows us 10 explore
a potentially interesting question: is R'[ H']
positive or negative and does it diITer between
men and women?
8. Contrary to Arrow's h)'polhcsl5 and III suppon of
ours. Bossons ([973). Friend (1994). Cohn et al. (1975).
Levy /1994). and (1993) all lind empirical cvidence
that risk avcrsion declines as wealth increaSl..'S.
9. See Equlltion (2).
10. A .>CCond·order Taylor series i5$.I\'en 111 = kl
RIO] - + tkR'[O]'IR[OIJ kR"(Oy
2R[Of)lJ-2 + 0[ w) Predicting the sign of the Wl coeffi·
cient - (kR"(OY2R(Oll) is difficult bc;:ausc
the sign and relative magniwde of R"(OI are unknown.
If the coefficient IS negati\'c, we could certainly infer that
K[O] is positin' and relathc!) large, but the Significance of
this economic interpretation is unc[car. If the coefficient is
wc Cannot distinguish between negatiw or posi·
me \'3Iues for R"(0l.
''''
ECONO:'UC II\OUJRY
C. II/collie
Our argument is int uiti ve. As suggested in
our discussion on age, at any time II. investors'
retirement assets are jointly held in current
assets and yet-la-be received cash investments.
We havehypolhesized that investors with lower
R( IJI] have a lower 0.. This lower!l in turn leads
to lower IV" and a greater need \0 increase C!
to catch up. As a demographic group. women
have lower incomes than men and thus less dis-
cretionary income they arc constrained in
their ubility to catch up. As the income leve[s
of women rise, they arc less constrained (can
catch up more quickly), Therefore. we reason
that there should be a positive coefficielll
between income and IX for women.
On the other hand. our hypothesis suggests
that men have lower R[ 111. higher 0:. and thus
higher 11'". Under our hypOIhesis. we expect
that men reach the point in their accumulation
cycle at \\ hich they can reduce II sooner and
with higher probabi lit y. In addition. if men
have higher incomes than women. they have
grea ter capability to compens<1.te for advcrsc
investment results by using their grea ter dis-
cretionary income for future investments.
Consequentl y. men face less retirement risk
than women. and as their income levels rise.
thcy probably invest a greater proportion of
their assets in more conservative investments.
Wc \vould expect to see a negative coefficient
bet\\ccn income and 0: for men. Note that this
is not an argument that II is 100\er for men
than for women. but an argument about the
direction 0: is moving relative to income.
D. Mariwl S/(I/Its
Rickman. Parker. and Terry (2002). Hinz.
McCarthy, and Turner (J 997), and Sundell
lind Surette (1998) find (generall y) weak evi-
dence of il negativc relation between 0: and
marital status for both men and women. A
negative coefficient suggests thai marriage
makes investors more risk averse than singlc
investors. Bemasek and ShwiIT (200 i) find sta-
tistically significant evidence that marriage
makes men more risk-averse investors lind
weak evidence that marriage makes females
less risk averse.
There is some theoretical support to the
notion that more risk-averse individuals arc
more likely to marry sooner. Spivey (2006)
uses a search model that predicts that more
risk-averse individuals will enter marriage
sooner. She arg.ues that women may find that
trait of risk aversion is an appea ling trait in a
man. Hartog. Ferrer-i-Carbonell. and Jonker
(2002) argue thaI marriage can be viewed as
a contract wi th significant dissolution costs.
Ri sk-averse individuals could find the scpara-
tion costs of marriage an appealing feature.
They find that marriage is significant ly related
to risk aversion, with married couples being
significantly more risk-averse than single
and cohabiting individuals.
We arc interested in measuring any diITer-
ences in risk aversion betWCCIi men and
women. independent of their marriage state
and in the cOnlext of a marriage. Thus, it mar-
riage variable is included in one model to cap-
lure the mariwi component of risk aversion.
which may be independent of gender. In a sec-
ond model, we interact the gender variable 10
other relnant vari:1 bles that Illay capture joint
retirement funds allocation decisions for
married households.
E. Fillllllci(li Obligations after Rl'tirt'IIIf.""
Financial obligat ions after retirement may
also have un elfcet on the level of risk an indi-
\'idual or n household may take on retirement
funds. A variable that captures whether the
respondent expects to financially support
someone after retiring (other than the spouse,
if Illarried) is included in the empirical model.
Theoretically. the impact could go either way
and is therefore an empirical question. If an
individual needs more retirement wealth to
support someone, it may decrease the amount
of retirement funds allocated to risky assets
since the COStS associated with ri sky assets
going "bad" is higher. On the other hand, it
may :llso be possible that 10 supplement retire-
ment income. the need \0 invest in relatively
more risky assets is higher si nce the potential
for higher returns is greater.
Ill. DATA
The data tls(:d in this article arc from amnii
survey sent to 1.850 tenure-track faculty aged
50 yr and older at all K:lIlsas Regents institu-
tions in September to October 2003. with a
response rate or 35%. This data SCI contains
detailed information on demogmphic \aria-
bles, income. wealth. distribution of retirement
ARANO. PARKER & TERRY: RISK AND ASSET ALLOCATION
15'
TABLE I
Variable Definition and Summary Statistics
\'pri ublc Dc/inilillll ,\lalc Singlc· i\\Prried Female Si ll j!w
ST Pcrcent of uni\crsll} retirement 35.19 (32.54," -1 8.03 (29.38) 36.81 42.28 (33.65)
funds in stock
RWEALTII (S. \aluc of ail 880.70 (580.55) 100).43 (7701) 613.90 (376.49) 700.621566.62)
perwnal
amI ac<;ullIulated la1uc
of rctin.'ment
AGE Age of respondent 59.-\9 (6.88) 58.82 (5.52) 56.83 (4.66) 56.-\9 (4.72)
INC Current income 65.14 (19.71) 79.3-1 (26.87) 65.28 (25.39) 63.39 (20.14)
(2003. S. thOUSiin<.b)
of rcspondent
surr I if respondcnt to 0.14 (0.35) 0.12 (0.32) 0.07 (0.26) 013 (0.34)
finJnci:ll1y support >on1l::one
lOt her than spouse1 after retlnng
tNtl 1 if spouse innucncl:s a 0.1-1 (0.35) 0.33 (0.-18)
larger % of stocks held (}n
rellremcnt
V
"
234 41 45
never married. wido"cd. SCp:lfated. or dllorccd.
"stlll1d;mJ dCI i'llions arc ghen in parcnthl!SCs. Number of ob.cr\'atiol1s for each category onl) rcncelS tho.c wilh com-
plete ilcm responsc for I':lrillblc;. of interest.
assets. and investment decisions by married
households." Faculty in data set have
lin average age of 58.4 yr. 24.8% arc female.
and have an of 26.6 yr of totaluniver-
si ty
In terms of the retiremelll plan (i.e., DC for
this sample), there arc a few constraints that
should be taken into considerat ion. The struc-
ture of the retirement plan (plan administra-
tion. investment opti ons. etc.) and the pool
of available investment prO\ iders are under
the discretion orthc Kansas Board or Regen IS.
not the individual partieipat1ls. Thus. the
allocation of the retirement funds made by
these faculty members is constrained by the
aforement ioned factors.
For the purpose of this article. definitions
and summary st;ttistics of the va riables of
interest. segregated by gender and marit;tl
status. are presented in Table I.
For Ihis particular subset of the data scI.
19.78% arc female. Males who arc married
hold 48.03% of their retirement funds in stock.
while only about 42.28% are held by married
II Tins !let IS an update of n 1996 )ur.-ey. Thc
previous surl'cy did 001 hale iofoTtnillion 00 ho" rellre-
ment ruods are made by married
hou.cholds.
12 For a completc dl!SCrtpu,e summary ofthc survey.
sec Parker el ,,1. (2005).
females. Those who arc single. whether ma le
or female. hold a lesser percentage of their
ret irement assets in more risky assets (Le ..
stocks) compared to those who arc married.
For married females, 33% report Ihat their
spouse inOuences them to put a larger pcr-
cetllage of their retirement funds into stocks
compared to only 14% for married males.
lV. MODEL SPECIFICATION AND ESTIMATION
Based on the Iheorelic;:d discussion pre-
sented earlier. a number of variables poten-
tially impact retirement funds allocation
decisions. The main research question to be
investigated is whether. as <I demographic
group. women are 1110re risk "verse than
men. that is. invest less of their retirement
funds in stocks. Given that information about
household investment decision making is
avai lable for married households. the effect
of gender on the investment decision for these
households is also investigated.
A. Model J
The first model estimates the factors that
impact the percentage of relirement funds
invested in stocks (ST,) for the entire sample.
The model ;s specified as:
152 ECONOMIC INQUIRY
(3) ST, Jlo + p,GEN,
+
+ P3 RWEALTH;
+ P.tMARj + P5AGE; + P6
INC
;
+ P7
SUPP
, + Pi'
As previous discussion suggcSlS, ST; prox-
ies for the underlying risk tolerance of the
individual.
u
The set of explanatory variables
includes gender (GEN), coded [ for female and
o otherwise: retiremenl wealt h ( R WEA L TI-I):
marital status (MAR). coded I for married
lind 0 otherwise: "ge (AGE): curren! income
(INC): and financial support to others after
retirement (SUP). coded 1 if respondent ex-
peCts to financially support someone (other
than spouse. if married) after retirement. To
capture for RRA with respect to wealth, a qua-
dratic term for thc retirement wealth variable
is included (R WEA L TH\
Since the dependent variable. ST,. is cen-
sored below at 0 (for faculty who hold no
stocks in their retirement portfolio) and above
al 100 (for f"culty who hold their entire re-
tirement portfolio in slocks), Equalion (3) is
estimated using the two-limit Tobit model. 14
The marginal eITects
'S
of the explanatory
variables on the percenwge of retirement
funds held in stocks are reponed in Table 2.
'6
The gender marginal eITecI in Model I is
nO! sl:llistically significant indicating that ancr
controlling for dcmographic, income. and
wealth diITerences. the women fllculty arc
not more risk averse than men. There is no sig-
nificatll evidence that women hold a lesser per-
centage of their retirement funds in stocks
13. We are only llblc to cllpture the 10t:LI percentage of
rcuremen! funds allocated to siocks but 1I0t the spc:cifie
allocation of funds wilhm Ihe aliOLment for stocks. As
such. I\e define a faculty to be relathdy less risk al'ersc:
if II greater proporliOI1 of the tOllll retirement fund is allo-
cated to stocks.
1-1 15.4·Y. of faculty ill the sample held no stocks in
their retiremen! portfolio, \lhile 8. 1"1, held Iheir entire
retirement portfolio in siocks.
15. Unlike parameter eSlimales in ordinary least
squares regressLon. Tobit coefficiel1ls measure the mar-
ginal effect of Lhe independcllt variable on the latent vllri-
able. nOllhe observed variable, ST,. The marginal effects
arc sepamtcly. computed al Lhe means of thc
X,s. The software LIM DEP is used for ullthe estimallons.
16. To assess Ihe robustness of the estimated model.
particularly the effC'!;t of gender on ST
j
• IIltcrnllti\e models
Ilere estimated "here the explanatory variables "ere
scquenti.Llly uddt'd. The parumeter estim:lIes remained
stable both in size and in direl.,tion
TABLE 2
Marginlll ElTccts of the Retirement Fund
Investment Decision
Variable
Interttpt
GEN
RWEALTI-I
RWEALTll
z
MAR
AGE
INC
SUPP
47.73 (17.27)
US (4.01)
0.22· (0.05)
- 0.000000032· (0.00000001 t)
10.53· (4.0fl)
- 0.63" (0.28)
-0.06 (0.60)
8,-11· (-1.50)
Nme.t' Likelihood ratio statistic = 938.61. p = O. N =
455. Standllrd errors are given in p,lTl:nthL:SCS.
• and •• Indicate 1% and S''l'o significance lelels.
respectively.
than do men. Papke (1998) reports similar
findings, although a number of studies find
significant gender differences in risk aversion.
The significant marginal effects for
R WEALTH and R WEA L TI-I2 suggest abso-
lute risk aversion decreases as an individual's
wealth increases and RRA decreases as wealth
increases (although vcry small in magnitude).
Alternatively. the percentage of retiremenl
funds held in stocks increases at a decreasing
rate as retirement wealth increases. Specifi-
cally, a $100,000 increase in wealth increases
the percentage of retirement funds in stocks
by 2.14%, while a $200,000 incrcase in welllth
increases the percentage of rctirement funds in
stocks by 2.07%.17
In contrast to results from previous studies
that indicate marriugc makes investors more
risk averse, the estimate from Model I implies
that being married increases retirement aSScts
held in stock by 10.52%. This result may cap-
ture the fact that marital status signals, on
average. greater combined wealth. and thus
lower risk aversion. The investment decision
may also be aITected by the expectation of
financial support to someone (other thlln
spouse, if married) after retiremcnt. The pos-
itive and significant coefficients for SUPP
suggest tllllt the expectation of financially sup-
porting someone after retirement increases
17. An alternatile model was estim;oted "here
gender was allowoo to interact with R WEA L Til 11l1d
RWEALTHSQ to examine if risk 3\'cl'5ion "ilh respect
10 retirement wealth differs betwccn men and women.
Our result shows that there is no significllnt gender-based
risk aH'rsion wilh respccllO relirement wealth.
ARANO, PARKER & TERRY: RISK AND ASSFf' ALLOCATION
"3
the lIlnount of retirement funds held in stock
by 8.41%.
Age has a significant negative eOcct on the
percentage of retirement funds held in stocks.
The estimatc implies that for each addi tional
year of agc for thcsc faculty, retin:ment funds
held in stocks is rcduced by 0.63%.
The marginal elTect of income, ulthough
negative a!, previously hypothesized, is not
significant.
8. Model 2
The est imation in Model I did not allo\\ for
the possibility that gendcr Illay interact with
how investment decisions are made in married
households. The probability of joint decision
making is quitc likely. In the sample. 57.4"A,
of married households report that the faculty's
spouse influences how their reti rement assets
are invested. and in particular. 17.2% report
that thcir influences them to hold
a larger percentage of their retirement assets
in stocks.
Using a subset of only the married house-
holds in the overall sample. a second model
is estimated to eXllmine if gender has an elTect
on ST, for m:lrried households. Model I in
Equation 3 is extended to allow for gender
10 interact II ith the influence of the spouse
in the retirement asset allocation. The second
model is specified as:
(4)
+ fll RWEALTH; +
+ pjAGEi + J3
6
INCi + fl7
SUPP
/
+ flR INFi + f3q INFGEN, +
where I NF is coded I if the spouse influences
a lurgcr percentage of retirement funds to be
held in stocks and 0 otherwise. INFGEN is
an interaction term between gender and
INF. and all the other variables ine as defined
from Equation (3). The marginal elTects are
reported in Table 3.
The gender variable is now highl y signi fi-
Clln\. Note that the gender variable was inter-
acted with the spouse's influence on retirement
funds allocution. Thus. the efTcct of gender on
retirement funds all ocation depends on the
influence of the spouse. Overall. for 11 married
fema le. with her spouse influcncing a larger
TABLE J
Marginal EfTects of the Retirement Fund
Decision for Married Households
"uriable
[mercer!
GEN
RWEAlTIl

AGE
INC
SUP!'
INF
lNFGEN
\ loth.' J 2
31041 m.74)
IS.Ol" (8.11)
0.3S" (0'(l9)
- 0.000000068··
-0.16 (0.38)
0.57 (0.S8)
8.33· (6. I I)
10.91" (6.76)
-38.04·· (1·'1.18)
\'(lII'S: LR still'" 1112.58. fI .. O. N = 1112. Standard
error.; lire givcn in parentheses.
• and •• mdicatc 5':, and significance Ic\cb.

percentage of the retirement funds to be held
in stocks. this to 20.03% less ret irement
assets held in stocks compared to married
ma les whose spouses likewise influence them
to hold ,I larger percentage of their ret irement
funds in slocks. This may imply higher risk
aversion for the female spouse relative to
the male spouse. Funher inspection of the
data shows that a married male faculty holds
on average 48% of his retirement funds in
stocks. while a married female faculty holds
about 42% of her retirement funds in stocks.
Furthermore. within the context of joint deci·
sion mnking, only 14% of married male faculty
report thnl their spouse influences them to
hold morc stocks as opposed to 33% of mar-
ried female faculty reporting their spouse
influences them to hold more slocks.
The marginal effect on the interaction term,
lNFGEN. which is - 38.04, captures the
unique elreet for the female of the spouse's
influence on holding a larger percentage of
retirement funds in stocks that is not present
on males. These results seem to be consistent
with the results of Bernasek and ShwifT (200 1)
where they found that II female respondent.
with her spouse willing to take substantial
risk for a substa ntial return and also an aver-
age risk for an average return. will decrease
the percentage of her pension invested in
stocks by the amount of 43.28% and 46.25%,
respectively.
Mosl of the other relevant variables had
similar elTects on ST
j
as was shown by the
,,.,
ECONOMIC INQUIRY
results from Model I. Married faculty also
exhibit dccreasingabsolulc and RRA as retire-
ment wealth increases. Those who expect to be
financially supporting someone aner retire-
ment hold 8.32% morc of their retirement
funds in stocks re]'Hive to those who do not
expect to be finuncially supporting someone
afler retirement. Age and income. however.
do not significantly influence the percentage
of retirement assets held in stocks for married
facuJly.18
The data set included information on
other potentially relevant variables that may
influence risk aversion on how retirement funds
arc allocated. These include Ihe expected Social
Security benefit upon retirement. expectation
of retirement income \0 meet the family's CUT-
rent standard or living. expected retirement
age, and an estimate or lire expectancy. None
or these variables have a significant impact on
the amount or retirement runds "llocated in
slocks when included in Ihe model.
VI. CONCLUSIONS
This article examined potential differences
in gender-based risk aversion using relire-
ment runds allocation or Kansas Regents uni-
versity faculty aged 50 yr and older. Two
models were developed. one, investigating
whether, as a demographic group, women
invest less of their retirement funds in stocks
and, IWO, examining Ihe effect of gender
on the retirement investment decision for
married households.
The initial finding from the first model is,
after controlling for demographic, wealth,
and income heterogeneity, women faculty in
the Kunsas Regents universily system do
not significantly hold a smaller proport ion
of their retirement assets in stocks. and there-
fore do not show significa nt higher risk aver-
sion than the male faculty. Although previous
studies have shown mixed results, a majority
have found Ihat women tend to be more
18. It should be nolOO. hown'er. th:1I the dal:. onl}
cover faculty aged 50 yr and older, Ihe nature of the Kan-
sas faculty retirement structure wherein only specific funds
are "approloo"I"al1owed," and the limited financial
e.'penisc of most facul!). who tend to follow recommen_
dations from campus representati\cs. As such. these
results likewise rdlC(:t constrained choices. An
model w:.s estimated that includl-d a Ihat eapturcs
the effect if a respondent paid for a financial planner for
investment/retiremenl advice, and lh.s vanablc dId nOI
ha\c a signific:lnt effC(:t on ST.
risk averse than men. In an earlier article by
Rickman, Parker. and Tcrry (2002) using a
1996 survey of Kansas Regents university
faculty aged 50 yr and older. the finding was
that women faculty hold a smaller percentage
of their retirement assets in stocks. What is
apparent is that the gender-based risk aversion
as shown by the gap in the percentage of retire-
ment assets held as stocks has changed over
lime for this faculty group. The initial survey
was conducted during 11 ncar nirvana economy
and above average financial returns. whereas
the survey used in this article was conducted
during ,I peri od of economic downturn (2003).
The results also support less ubsolute risk
aversion and less RRA as wealth increases.
Married households exhibit less risk aversion
compared to single households.
The main contribution of Ihis article is the
availability of detailed information concern-
ing how investment decisions are made in mar-
ried households and how this interacts with
gender in examining risk aversion. Bernasek
and Shwiff(2001) is the only other study that
we found to have examined gender-based risk
aversion in detail for married households. Our
estimates show that women who have spouses
who influence them to hold a larger percentage
of thei r retirement assets in stocks lake lesser
risk than men whose spouses likewise influen-
ces lhem to be less risk averse. This may sug-
gest that women arc more risk averse than
their spouse.
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TITLE: Gender-Based Risk Aversion and Retirement Asset
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SOURCE: Econ Inq 48 no1 Ja 2010
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. In a DC plan. and the amount of contributions made to the plan. rio is the return on human capi tal ror thc investor.. ir women as a group arc more risk lIverse (have higher levels o f RRA) then they shou ld place a sma ller proportiOl~ orthe~ r wealth into risky asselS. we should empirically obser. and retirement wealth.Y was to determine whether..1pital should be somewhat homogeneous across faculty. Ir women place a smaller proportion or their wealth into risky assets than do men then we may inrer that they have higher levels or RRA than do men. E{r. The primary purpose of this slud. respondent's retirement assets allocation IS IIkewisc investigated.hlR £{" J women arc more risk averse thun men (invest less of their wealth in risky assets). prererences. as well as the performance of the investment or the participant's "ccount. we sec that for a gi\en individual \\ilh I and II fixed.e an inverse relation between the proportion or wealth imested in risky assets and the RRA across indi\ iduals or groups. The models arc cstmmtcd with a unique dala SCI or Kansas Ilo~~d or R eg~nls university raculty that. Equation (I) becomes r .m economic model with the proportion or unhersity retirem nt runds 7 in risky asscls as Ihe de~ndc~t ~anabl~ and measure whether gender IS a slgmficlint IIldependent variable aner controlling ror o ther theoretically relevant variables. (2) ( I . the occuplIIion is the same ror all individUllls and the S<. The data set also provides greater homogeneity across individuals. is the investor's marginal ta't rate. individual and household mcome.r.6 with U(1I"(!(/lrlt) as the invcstor's util. marned h. :r:z Cov{r""r. is approximately zero. witl determim: retirement income (Bajtelsmit and VanDerhel 1997). and calcullttions.. Petersen (1996) notes that asset allocutions in a defined contribution (DC) plan should pro:\y for the underlying fisk tolerance of the individual.. R (RRA) and Cln re inversel) related.. THEORETICAL FRAMEWORK Our primary hypothesis is that if women arc more risk averse than men thellthey would be expected to invest a smaller proportion or their wealth in risky assets. which can control ror extern. }/ 0. is the return on the markell>Ortrolio.held III stocks. Becker de\-eloped the theoretical foundation ror extending the lraditional economic rational choice analysis to incorporate a wider class or altitudes. " is the human capital/wealth ror the investor. The investmenl in hunl:ln c. In particular..ouseholds.. ity function or wealth.:c~ a.. In general. Alternatively. -1!r/(1 . = riskyassets/ weahh 1 . Friend and Blume (1975) use a Taylor series expansion to define the proportion of an investor's portrolio invested in risky assets. as a demographic group. their behavior is rorward looking and consistent over time.'" ECONO~IIC INQLIR' this retirement income disparity between men and \\-omen. a. We e~ timat e .lpital. and R = 111 -U'(wea lth)IU' (wealth)] is the Prall's measure or rclati\e risk a . is the return on the risk-r~ee assct. colllains measures ?r the percentage or retirement assets ..} / u! is the bela or the human e. ... II.'f l / cr.r){ 1 . in uddltlOn to typical demographic variables. E{r". .r.. 6 See Prau (196·11.. Ihat caplure joint decision maklllg ror. ~./r )R> '" MI'R.} is the expected rISk premlUn~. ..1 influences on the investment decision that may otherwise be difficult to model..n. assumed conStant. 0"2 is the variance or the market portroito. Ihe interaction between gender and how the spouse influc~l(. the participant allocates the retircm~nt funds among difTerent investment allcrnauvcs. For married households.III/{ I . individuuls maximize welrare as they conceive it. is the margi"al pricC' of risk (MPR). A second model is estimated to 'lHow ror the interaction or gender and other relev~nt va riables.. Fama and Sch\\ert (1977) and Llbcnnan (1980) show that Ph.. .lme retirement plan e't isl5 ror all Regents un1l'ersities. In his analysis.. and their uetions arc limited by income.h ) J~hm' \\here r. In p'lr1icular..r){ l .' \\hen estimated in a time series. ersion (RRA). ( I) ::r. 10 be: Since MPR is assumed constant across individuals. Therefore.

11). lower) for women than for men. PARKER & TERRY R[SK AND ASSET ALLOCATION '49 imperfect memory. 350). income. Malkiel 7 advises "more common stocks for individuals earlier in the life cycle and more bonds for those nea rer retirement. Empirica lly. The conventional wisdom of the fin. If the coefficient IS negati\'c. un less the demographic group in question has homogeneous behavior of R' [III). ellrning differentials. 0 We have hypothesized that women. However. lmd by OIher limited resources including time (Becker 1993). where k = MP RI (I . we make no a priori prediction about either the sign or the magnitude of a welilth coefficient or of differences in the coefficient betwecn women and men. Portfolio theory suggests that utility·maximizing individuals assume varying degrees of risk that are innucnccd by a number of fac tors. Thi:. marital status. we hypothesiLe that investors with greater risk nversion take more conservative investments. skills and education attainment. 9.msion of the above rehllion about IV = 0 gi\'es :x[ IV] = (kl RIO)) . calculating capacities. Wang and Hanna (1997) find that the proportion of wealth held as risky assets is positively correlated with age.tHI .9 A first-order Tnylor series exp.(kR'[oY~Of)1I' + tkR'[O]'IR[OIJ kR"(Oy 2R[Of)lJ-2 + 0[ Predicting the sign of the Wl coeffi· cient (~R ' [OffR[OI) . while RR A should be increasing in wealth.and marriagc·bascd diITcrcntial choices in asset accumulation. Ri ley and Chow (1992) find that risk lIversion decreases with age un til 65 yr and then increases. as a group.He fre· quently included in stud ies that ex'lmine the issue of risk aversion. we could certainly infer that K[O] is positin' and relathc!) large. Age Age is typically included in models that estimate the eITeets of demographic variables on investment decision making. a regression of Wagainst ::t could lead 10 a weak coefficient of either sign. und education. by opportunities in the economy that are mostly detennined by individual and collective actions of other individuals or groups.>CCond·order Taylor series i5$. This means that.weial planning ind ustry is that investors reduce the proportion of Iheir assetS held in risky investments <IS they ncar retirement. our hypothesis says nothing about any diITerenees in R'[IV] between women and men. (1975). See Equlltion (2). including the term allows us 10 explore a potentially interesting question: is R'[ H'] positive or negative and does it diITer between men and women? 9 Arrow (1965) hypothesized that did W 1-U'(110/U'(W)) < and d/d Il1-1V((!'(l VJI 7. These studies suggest that the rel:ltion between the proportion of risky assets held and investor age n1<ly be complex and sample dependent. Levy /1994). but the Significance of this economic interpretation is unc[car.W(U"[ JII]/U'(JII) and we hypothesized earlier that a[W] ::::: kIR[JII]. w) . as a demographic group. Empirical evidence on the relation between g RR A and wenlth is mixed. Recent studies based on multivariate regression analysis tha t included age have had mixed findings." Differences in the pla nning period are prox ied by age and . A.ARANO. It is unclear whether n second-order wealth term is required or theoretically justifiedwhat si n it should take and how to interpret its sign. ° 8. which leads to smaller accumulated wealth (dR! 1I11d W) < O. we have focused on R R A. See Malkle1 (\990. and Pals~on (1993) all lind empirical cvidence that risk avcrsion declines as wealth increaSl. wealth. In contrast. Cohn et al. If 'he sample being analyzed displays increasing (decreasing) RRA (R'[W] > 0). including portfolio choice. wc Cannot distinguish between negatiw or posi· me \'3Iues for R"(0l. Morin and Suarez (1983) llnd Bakshi and Chen (1994) find that risk aversion and age are pos· iti\'ely correlated.Ik R'IO)I RIO)') IV + OW'). are more risk averse than men. framework has been applied to analyze social issues including gender. Contrary to Arrow's h)'polhcsl5 and III suppon of ours.(kR"(OY2R(Oll) is difficult bc. These factors include age. presumably under the assumption that they lack sufficient remaining working years to recover from a large investment setback. Bossons ([973). A . In other words. HO\\'ever.. R[ IV] = .I\'en by~! 111 = kl RIO] . Friend (1994). RpVl is higher (a. Wealth U'[IJI!)] = dR[If/]/dW > O. In the Theory sec· tion. we would expect a negative (positive) coefficient on wealth.'S. and other economic choices. Nevertheless. 10.:ausc the sign and relative magniwde of R"(OI are unknown. B. absolute risk aversion should be decreasing in wealth. If the coefficient is po~lthc. Consequently.

On the other hand. and Terry (2002). which may be independent of gender. Consequen tly.850 tenure-track faculty aged 50 yr and o lder at all K:lIlsas Regents institutions in September to October 2003. In addition. Hartog. We arc interested in measuring any diITerences in risk aversion betWCCIi men and women. This data SCI contains detailed information on demogmphic \ariables. distribution of retirement . This lower!l in turn leads to lower IV" and a greater need \0 increase C! to catch up. our hypothesis suggests that men have lower R[ 111. with a response rate or 35%. Under our hypOIhesis. income. Fillllllci(li Obligations after Rl'tirt'IIIf. risk-averse individuals will enter marriage sooner. at any time II. Bemasek and ShwiIT (200 i) find statistically significant evidence that marriage makes men more risk-averse investors lind weak evid ence that marriage makes females less risk averse. She arg. higher 0:. We havehypolhesized that investors with lower R( IJI] have a lower 0.. and Sundell lind Surette (1998) find (generally) weak evidence of il negativc relation between 0: and marital status for both men and women. Wc \vould expect to see a negative coefficient bet\\ccn income and 0: for men. Parker. and Turner (J 997). independent of their marriage state and in the cOnlext of a marriage.te for advcrsc investment results by using their grea ter discretionary income for future investmen ts. Hinz.'''' C. As the income leve[s of women rise. the impact could go either way and is therefore an empirical question. Mariwl S/(I/Its Rickman. it may decrease the amount of retirement funds allocated to risky assets since the COStS associated with risky assets going "bad" is higher. As a demographic group. Spivey (2006) uses a search model that predicts that more Ill. They find that marriage is significant ly related to risk aversion. In a second model. thcy probably invest a greater proportion of their assets in more conservative investments. we reason that there should be a positive coefficielll between income and IX for women. Ferrer-i-Carbonell. men face less retirement risk than women. and as their income levels rise."" Financial obligat ions after retirement may a lso have un elfcet on the level of risk an indi\'idual or n household may take o n retirement funds. and Jo nker (2002) argue thaI marriage can be viewed as a contract wi th significant dissolution costs. On the o ther hand. they arc less constrained (can catch up more quickly). There is some theoretical support to the notion that more risk-averse individuals arc more likely to marry sooner. we expect that men reach the point in their accumulation cycle at \\ hich they can reduce II sooner and with higher probabi lity. Therefore. wealth. Theoretically. they have grea ter capability to compens<1. Thus. II/collie ECONO:'UC II\OUJRY Our argument is int uiti ve. it may :llso be possible that 10 supplement retirement income. women have lower incomes than men and thus less discretionary income they arc constrained in their ubility to catch up. A variable that captures whether the respondent expects to financially support someone after retiring (other than the spouse. Risk-averse individuals could find the scparation costs of marriage an appealing feature.ues that women may find that trait of risk aversion is an appea ling trait in a man. McCarthy. with married couples being significantly more risk-averse than single and cohabiting individuals. and thus higher 11'". if Illarried) is included in the empirical model. the need \0 invest in relatively more risky assets is higher si nce the potential for higher returns is greater. A negative coefficient suggests thai marriage makes investors more risk averse than singlc investors. If an individual needs more retirement wealth to support someone. investors' retirement assets are jointly held in current assets and yet-la-be received cash investments. DATA The data tls(:d in this article arc from amnii su rvey sen t to 1. D. we interact the gender variable 10 other relnant vari:1 bles that Illay capture joint retirement funds allocation decisions for married households. E. As suggested in our discussion on age. if men have higher incomes than women. it marriage variable is included in one model to caplure the mariwi com ponent of risk aversion. but an argument about the direction 0: is moving relative to income. Note that this is not an argument that II is 100\er for men than for women.

wido"cd.e.03% of their retirement fun ds in stock.-18) larger % of stocks held (}n rellremcnt a~>c1S V 234 41 45 ST \'priublc Dc/inilillll . definitions and summary st. lV. Those who arc single.8% arc female. The main research question to be investigated is whether.ARANO.14) (2003. whether ma le or female. DC for this sample). The structure of the retirement plan (plan administration.03 (29.14 (19. 33% report Ihat their spouse inOuences them to put a larger pcrcetllage of their retirement funds into stocks compa red to only 14% for married males.43 (7701) 613.39) 63. Model J The first model estimates the factors that impact the percentage of relirement funds invested in stocks (ST .66) 56. lhousand~) \aluc of ail 880. Thc previous surl'cy did 001 hale iofoTtnillion 00 ho" rellrement ruods in\C~tmcnt dl'CiSlon~ are made by married hou. in\c<OlmCnl~.88) 58.28% are held by married II Tins d~l~ !let IS an update of n 1996 )ur.39 (20. or dllorccd. women are 1110re risk "verse than men.b) of rcspondent surr I if respondcnt e~p!.4 yr..33 (0. Thus. are presented in Table I.-\9 (4.tl status. For Ihis particular subset of the data scI. PARKER & TERRY: RISK AND ASSET ALLOCATION 15' TABLE I Variable Definition and Summary Statistics Female Sillj!w M~rricd Pcrcent of uni\crsll} retirement 35.ttistics of the va riables of interest.e summary ofthc survey. segregated by gender and marit. and have an a\'era~e of 26.62) perwnal sa\il1g~.70 (580. For the purpose of this article.72) INC Current income 65. invest less of their retirement funds in stocks. hold a lesser percentage of their ret iremen t assets in more risky assets (Le .1. a number of variables potentially impact retirement funds allocation decisions. The model .26) 013 (0.) for the entire sample. S.34) finJnci:ll1y support >on1l::one lOt her than spouse1 after retlnng tNtl 1 if spouse innucncl:s a 0.3-1 (26. the allocation of the retirement funds made by these faculty members is constrained by the aforement ioned factors. 19.83 (4.55~ funds in stock RWEALTII (S.65) 36.1-1 (0. amI ac<.:d discussion presented earlier.cr\'atiol1s for each category onl) rcncelS tho.87) 65. that is..) and the pool of available investment prO\ iders are under the discretion orthc Kansas Board or Regen IS.. Given that information about household investment decision making is avai lable for married households.52) 56. 24.28 (25. thOUSiin<.19 (32.12 (0.71) 79.81 130. sec Parker el .'~ In terms of the retiremelll plan (i.55) 100). stocks) compared to those who arc married. the effect of gender on the investment decision for these households is also investigated. etc..07 (0.cholds. investment options.s specified as: .6 yr of totaluniversity em ploymelll.-ey. females. as <I demographic gro up.'Cts to 0.35) 0. A. of interest.'ment rUlld~ AGE Age of respondent 59.ullIulated la1uc of rctin.35) 0. not the individual partieipat1ls.-\9 (6.49) 700. For married females. there arc a few constraints that should be taken into considerat ion. "stlll1d.82 (5. while only about 42.38) 42. and investment decisions by married households. 12 For a completc dl!SCrtpu.14 (0.32) 0.90 (376." Faculty in thi~ data set have lin average age of 58.mJ dCI i'llions arc ghen in parcnthl!SCs. Number of ob. (2005).621566. Males who arc married hold 48.\ lalc Singlc· i\\Prried never married.54. SCp:lfated.c wilh complete ilcm responsc for I':lrillblc. '111c1udc~ " assets." -18.78% arc female. MODEL SPECIFICATION AND ESTIMATION Based on the Iheorelic.28 (33.

.73 US 0. coded [ for female and ootherwise: retiremenl wealt h ( R WEA LTI-I): marital status (MAR). ' Likelihood ratio statistic = 938.oted "here gender was allowoo to interact with R WEA LTil 11l1d RWEALTHSQ to examine if risk 3\'cl'5ion "ilh respect 10 retirement wealth differs betwccn men and women. To capture for RRA with respect to wealth. • and •• Indicate 1% and S''l'o significance lelels.61. held Iheir entire retirement portfolio in siocks. of faculty ill the sample held no stocks in their retiremen! portfolio.07%. while a $200. Papke (1998) reports similar findings.Llly uddt'd. + Pi' As previous discussion suggcSlS.-11· (17. Standllrd errors are given in p.14% .52%. greater combined wealth. nOllhe observed variable. computed al Lhe means of thc X.tMARj + P5AGE. Unlike parameter eSlimales in ordinary least squares regressLon. coded I for married lind 0 otherwise: "ge (AGE): curren! income (INC): and financial support to others after retirement (SU P).4·Y. a $100. There is no significatll evidence that women hold a lesser percentage of their retirement funds in stocks 13.0. The investment decision may also be aITected by the expectation of financial support to someone (other thlln spouse.60) (-1. 1"1. the estimate from Model I implies that being married increases retirement aSScts held in stock by 10. I\e define a faculty to be relathdy less risk al'ersc: if II greater proporliOI1 of the tOllll retirement fund is allocated to stocks. a quadratic term for thc retirement wealth variable is included (R WEA L TH\ Since the dependent variable.t of gender on ST j • IIltcrnllti\e models Ilere estimated "here the explanatory variables "ere scquenti. Tobit coefficiel1ls measure the marginal effect of Lhe independcllt variable on the latent vllriable. income.63" -0. This result may capture the fact that marital status signals. + P6 INC. \lhile 8.53· . Jlo + p.17 In contrast to results from previous studies that indicate marriugc makes investors more risk averse.s. As such. Alternatively. Our result shows that there is no significllnt gender-based risk aH'rsion wilh respccllO relirement wealth.152 ECONOMIC INQUIRY ~ (3) ST.28) (0. The marginal effects arc ealculal~'d sepamtcly. Specifically. . The software LIM DEP is used for ullthe estimallons. u The set of explanatory variables includes gender (GEN).06 8. N = t 455. proxies for the underlying risk tolerance of the individual.GEN. TABLE 2 Marginlll ElTccts of the Retirement Fund Investment Decision Variable Interttpt 47.50) + P7 SUPP. on average. ST.05) (0. than do men. p = O. and wealth diITerences.. Equalion (3) is estimated using the two-limit Tobit model. 14 The marginal eITects 'S of the explanatory variables on the percenwge of retirement funds held in stocks are reponed in T able 2. and thus lower risk aversion. '6 The gender marginal eITecI in Model I is nO! sl:llistically significant indicating that ancr controlling for dcmographic. is censored below at 0 (for faculty who hold no stocks in their retirement portfolio) and above al 100 (for f"culty who hold their entire retirement portfolio in slocks).000 incrcase in welllth increases the percentage of rctirement funds in stocks by 2.00000001 t) (4.000000032· 10.0fl) (0. particularly the effC'!. The parumeter estim:lIes remained stable both in size and in direl. + ~2RWEALTHi + P3 RWEALTH . ST. the percentage of retiremenl funds held in stocks increases at a decreasing rate as retirement wealth increases. We are only llblc to cllpture the 10t:LI percentage of rcuremen! funds allocated to siocks but 1I0t the spc:cifie allocation of funds wilhm Ihe aliOLment for stocks.. although a number of studies find significant gender differences in risk aversion.22· . An alternatile model was estim.27) (4.tion GEN RWEALTI-I RWEALTll z MAR AGE INC SUPP Nme. the women fllculty arc not more risk averse than men.000 increase in wealth increases the percentage of retirement funds in stocks by 2. + P. 15.01) (0.0. The positive and significant coefficients for SU PP suggest tllllt the expectation of financially supporting someone after retirement increases 17. 16. The significant marginal effects for R WEALTH and R WEA L TI-I2 suggest absolute risk aversion decreases as an individual's wealth increases and RRA decreases as wealth increases (although vcry small in magnitude). coded 1 if respondent expeCts to financially support someone (other than spouse. ST. if married) after retiremcnt. 1-1 15.lTl:nthL:SCS. respectively. if married) after retirement. To assess Ihe robustness of the estimated model.

11) 0. I I) 10. only 14% of married male faculty report thnl their spouse influences them to hold morc stocks as opposed to 33% of married female faculty reporting their spouse influences them to hold more slocks.33· (6. ulthough negative a!. Overall. O.18) T he est imation in Model I did not allo\\ fo r the possibility that gendcr Illay interact with how investment decisions are made in married households.74) IS. N = 1112.0.. T hese results seem to be consisten t with the results of Bernasek and ShwifT (200 1) where they found that II female respondent. The marginal effect on the interaction term. + pjAGE i + J36INCi + fl7 SUP P/ + flR INFi + f3q INFGEN. for m:lrried households. Furthermore.ARANO. Standard error. Age has a significant negative eOcct on the percentage of retirement funds held in stocks.000000068·· (O. T he second model is specified as: \'(lII'S: LR still'" 1112.3S" (0'(l9) .38) 0.04. retin:ment funds held in stocks is rcduced by 0.Ol" (8.28% and 46. captures the unique elreet for the female of the spouse's influence o n holding a larger percentage of retirement funds in stocks that is not presen t on males.S8) 8.. Model I in Equation 3 is extended to allow fo r gender 10 interact II ith the influence of the spouse in the retirement asset allocation.57 (0. Funher inspection of the data shows that a married male faculty holds on average 48% of his retirement funds in stocks.76) 8. + fll RW EALTH. will decrease the percentage of her pension invested in stocks by the amount of 43.. respectively. + ~t.58. and I(:r/~ significance Ic\cb. with her spouse willing to take substantial risk for a substa ntial return and also an average risk for an average return. rc~pecli\el)'. lNFGEN . this lead~ to 20. • and •• mdicatc 5':.38. This may imply higher risk aversion for the female spouse relative to the male spouse. The marginal elTect of income. for 11 married fema le. fI . The probability of joint decision making is quitc likely.25%. The gender variable is now highly signi fiClln\. Thus.'J 2 31041 m.~Ilo + ~.4"A. previously hypothesized. lire givcn in parentheses. a second model is estimated to eXllmine if gender has an elTect on ST.16 (0. The estimatc implies that for each addi tional year of agc for thcsc faculty.03% less ret irement assets held in stocks compared to married ma les whose spouses likewise influence them to hold . where I NF is coded I if the spouse influences a lurgcr percentage of retirement funds to be held in stocks and 0 otherwise. while a married female faculty holds about 42% of her retirement funds in stocks. (4) ST. of married households report that the faculty's spouse influences how their reti rement assets are invested. Note that the gender variable was interacted with the spouse's influence on retirement funds a llocution.I larger percentage of their ret irement funds in slocks. 17.63%. with her spouse influcncing a larger percentage of the retirement funds to be held in stocks. 57. and all the o ther variables ine as defined from Equation (3).04·· (1·'1. TABLE J Marginal EfTects of the Retirement Fund Decision for Married Households "uriable [mercer! GEN RWEAlTIl RWEATI'~ \ loth. and in particular. In the sample. which is .2% report that thcir ~pouse influences them to hold a larger percentage of their retirement assets in stocks. is not significant. Mosl of the other relevant variables had similar elTects on STj as was shown by the . INFGEN is an interaction term between gender and INF. the efTcct of gender on retirement funds a llocation depends on the influence of the spouse.GEN'+P2RWEALTH . Model 2 lNFGEN -38.91" (6. The marginal elTects are reported in Table 3. PARKER & TERRY: RISK AND ASSFf' ALLOCATION "3 the lIlnount of retirement funds held in stock by 8. + J3~MAR.OOOOOOO~6) AGE INC SU P!' INF -0. Using a subset of only the married households in the overall sample. within the context of joint deci· sion mnking.4 1%.

A.I period of economic downturn (2003).s estimated that includl-d a ~ariable Ihat eapturcs the effect if a respondent paid for a financial planner for investment/retiremenl advice. What is apparent is that the gender-based risk aversion as shown by the gap in the percentage of retirement assets held as stocks has changed over lime for this faculty group.cQlwm. The results also support less ubsolute risk aversion and less RRA as wealth increases.18 The data set included information on other potentially relevant variables that may influence risk aversion on how retirement funds arc allocated. Our estimates show that women who have spouses who influence them to hold a larger percentage of thei r retirement assets in stocks lake lesser risk than men whose spouses likewise influences lhem to be less risk averse.. hown'er. and Capital Markets.202. Bernasek and Shwiff(2001) is the only other study that we found to have examined gender-based risk aversion in detail for married households. and Retlremcnt. "Baby Boom.. 8.' rheoryu/Ri:>A TuAi"J:. risk averse than men. 1993. Population Aging. 0 S. expectation of retirement income \0 meet the family's CU Trent standard or living. Chcn. V. J. Twinney. G. and lh. women invest less of their retirement funds in stocks and. Gordon. 101. B~jtc\smit.163. and therefore do not show significa nt higher risk aversion than the male faculty. This may suggest that women arc more risk averse than their spouse. RIsk.. Ik~ker. who tend to follow recommen_ dations from campus representati\cs. Parker. VallDcrhei.56. VI. 7. as a demographic group. L. investigating whether. a majority have found Ihat women tend to be more 18. Aspec/Su/II. Bajtclsmit. None or these variables have a significant impact on the amount or retirement runds "llocated in slocks when included in Ihe model. As such...385-409. Mitchell. and income heterogeneity." in PUJiliQl1l1Jg Pellslum/or IIII' TII'fllly-Firsl enrlll')'. REn:RE. Philadelphia: University of l'ennsylvlIni!l Press. IWO. one. and an estimate or lire expectancy. . "wh) do Women Inlcst Differenlly than Men?" F. BaJtclsmil. These include Ihe expected Social Security benefit upon retirement. 200 I. 1996. K. S. "Gender DitTerences in Dcfint-d I'cnsion Contribution PI:lns:' Fit/uncial Serl'iCf'5 Rnil'. Married faculty also exhibit dccreasingabsolulc and RRA as retirement wealth increases.. 67. and M.32% morc of their retirement funds in stocks re]'Hive to those who do not expect to be finuncially supporting someone afler retirement.lianakoplos. after controlling for demographic." J(lII'l1(r/ o/Brw/ll!ss.urlt's. Ikrnasck.c I. Shwiff "Gender. 345. ECONOMIC INQUIRY results from Model I. S" lind Z.\'C F "S Arrow. and N. onl} cover faculty aged 50 yr and older. JOUfIIl/! 0/ F. these results likewise rdlC(:t constrained choices. th:1I the dal:. An altcrnati~c model w:. G. do not significantly influence the percentage of retirement assets held in stocks for married facuJly. Age and income. 1965.. expected retirement age.\. The initial survey was conducted during 11 ncar nirvana economy and above average financial returns.1999.s vanablc dId nOI ha\c a signific:lnt effC(:t on ST. edited by M. wealth. Married households exhibit less risk aversion compared to single households. and J. however. "Nobel Lecturc: The Economic Way of Lookmg at Behavior. I 10. I 10. Those who expect to be financially supporting someone aner retirement hold 8. the finding was that women faculty hold a smaller percentage of their retirement assets in stocks. The main contribution of Ihis article is the availability of detailed information concerning how investment decisions are made in married households and how this interacts with gender in examinin g risk aversion. whereas the survey used in this article was conducted during . 35(2).45--66. M. Ikmasek. and Tcrry (2002) using a 1996 survey of Kansas Regents university faculty aged 50 yr and older. Ihe nature of the Kansas faculty retirement structure wherein only specific funds are "approloo"I"al1owed. CONCLUSIONS Th is article examined potential differences in gender-based risk aversion using relirement runds allocation or Kansas Regents university faculty aged 50 yr and older. L. Bahhi. examining Ihe effect of gender on the retirement investment decision for married households. It should be nolOO. and . The initial finding from the first model is. V. V. In an earlier article by Rickman. "Risk A\'cr)ion and Pension Investment Choices. 1997. Finl"nd: Yrjo 113hnsson Found~lion.1994.lIllllriul Cumw4ing ulI/l PllIIlIJlIJg. Two models were developed. L." Jmrma! o/Political ECQlllmry. women faculty in the Kunsas Regents universily system do not significantly hold a smaller proport ion of their retirement assets in stocks." and the limited financial e.'penisc of most facul!). Although previous studies have shown mixed results. . A" and S...lleisinli:i.

e').C S Chapman.. "Ri~k A":r.itln I11H"lmel11s:' III 1'<I. c.f"". L.·· J. }ol/mulufF.S Subcommlllcc on Retlremenl Income and Emplo)'· men!.l AIIIII.-\w(lunt~ In P:irlic1pant·Direcu:d hMl"'lduOII Acc.II'm . "Risk AlerslOIl MeJ5urn: Comparing AtllludCli and A$5c:t Alloca· tion.u Board or Regents Faeuh}. A .rolkJIlll( R.' Washington.c. 1002. 95 12~ Friend.lL ImC">tor R. Rickman. :UlU N.k Til/K'S. }lIImllll /If RIsk uml C'ln'r· /Illn/y. A T)rner.ers. "AS§Ct Alloc:ation and Indil'idual Risk A\cr~IOIl.{'ulI. Do:p. W B. Tefl). R A. and 8... JlanJkopl()).·/l.207· 11 Sung. 1995.." 1'llI/ml'il..'. "Factors Related to RIsk Toler· ance'" FffWncI<l1 CllIuu('/mg IIml PI". J. Liberman. 4{L). U.·..mlllg. 55.IIl11rrt'. II. ··l~ DI~tnbulIon of A''<h among Irldil Klua[" or Dlrrerent Age .Ul~c lUlU A~:. I·ernandez. (. J." \(''' Yo. 197~.""i(' It"..1 S Goruon. r. C" IJ Rlckm:lI1. J W. "Are \\'omen Con:. 212 16..1 ScniUl RI' .cl . "1 10\\ arc: PaMll. IJ (j :1 Rllndum II ul~ 1)"'111 II <III Sir. R.11 .27·31 . lind E~pcctations of Kans.. lI nnna " I)oe~ Risk Toler-mcc Decrease WIth AgcT fillOlI(i<l1 Cmm$i:lm. 'e" York: W\\. S. D D ~kCarth).J."' FOT! lillI'S SIu. lit" . 1975... and M r Illume. 1997.1 PI'C"o~. 3 26. Prall. 1996. ill'.1'M-1~8 Cohn. June 18. R A \\ G.li(ll11 ju. tiO~ 20 Fama. "Rellrc:mcnt Plan~.S..'1""/.. .i'lIdlllilll S""'.\n: Women \ 1ore Rl~k Aler\oC·.. and T Johansen. I'. "Risk Alersion m the Smllil and in the Large.1.( IImf P/mmmg."· }. 257 . 78..' Gender DilTerences III Parll~ipal11·DIrlx:ted ]>~n. Morm."'lllion for In"esto1'$ Ncar· ing Retlrement.·CI)I""'1I0.." In 1'('1I$i<Hl$. 32. 88. I. I 26. 1<. 6~ 30.'(htCll b) R GokIsnllth I\~"\\ 'ork 'allonal Bureau of Econonuc Rt"SCarch. 1973 . L998. 1 ··AbM)lulc and Rt'latile RI'L\lc1'$ion: An ·1 ('penmenl:!1 5100) . i\ r errer·I·C:lrbonell.«111 L'''>lrmmf R<'I'II'l<. Does Rl)k Taking Mauer:' In Sludf.. [) Worden..II/III· t:illiliml/:cfllwmif I'we/iel'. Jonker. L998. and S. E.. OC: U." Worklllg paper.peration or [)esJrc~The Role orRlSk A'er~ion III \i:lrriagc. Terry.. 82(2). 199().· S""~.. J "Human Capnal and the hnane.1998. J. L991 Wang. II . llnd Il and· ing iliO Someone U sc.. "Gender Ba. ~7··58. educd b) 1'. Jnd M M Tl'oinne) Phlladclrhw.lilimriIlR 1'1'II. Ih.'-I'J «""iI'''.)83.'>CI~'" 1""". ulld K W Chow. R./fl".. :tnU 0 L Domian. L996. Go'ern· menl Printing OOlce. " lndl\ldu.. Srl'e). 165 91 Malkie1. R C. und D. ··Risk Tokr.1/1 /:." £nJlJtllIIl'lriCII..1 C." finunc. 2007. (. 0. "Link· IIlg Mcasull:d RIsk i\le1'$ion to Indl\idual Charac· terl~ucs.fll. Parker.H'>I. I/o" /I <-11 Do Wumtll I-il'" ('ndc. 2000. "GcndcrDllTerCnl"eS in thc Allocation or Assets III Rellrc:ment Sa'lIlgs Plans. :lI1d Wealth. 'I.225 61. tml"'~ltyorPcnnsyl· l:lnt./ It "·"/fll H. 91 106 Pal~wn. Pap].2002. 36.\rCl. Sunden.·"l'·".edlted b) I' A.. 1977. Schooley. :10. 7· n Petersen. 65.cnall\c Inle'lors".. u:'a5l.ln~e' }mIT/wlll} I-". 9.:("/.. Anllud~. 5. I "\lclhodoloV ofhl1. ~nu R P Hmz Washington.rI<lIlCiul I./..dlen. ' Ro"I:lnd.011·' Rl'liremrlll P"liei.l 70 lIartog. ~. and A 1 SU. I 12. OC· U.. and G Sch"ert "Human Carltal and M:lrket Equihbnum. I~'."lpants In'cstmg their . II:rnharan. 1(2). A ·· lI ollwhokL Ri~k TOIkinf."' "mtriwn E('IJIItHI1I( R..S. 1993.1964. 197~. Pension and Welrare Bc:nelilS Admmimmlon.\RKER & TERRY: RLSK AND ASSET ALLOCATION Bfuson).'f III lire Dillrrhufl(HI ()} 1/""" '. RIle).ount Pension Plans?"' AII"'f'll'Im I. cdlll-d b) N \\ [ul'oarJ Grccn"lch. R I>. 91 L03.c:d [)lrrercnl"Cs in A~:. II .).<11 }ol/r· 11/11..7~ '" Fncnd.al CapItal Market" }mmrulol HIW/lt'tI. ~8.\'111. 1996. "Dc. uml CUpiIUlllud.'IIIllr\'. 199~.ion and In\C">Unenl P<>rtf"ho C(lnl~lhon·· illltrfwl 'if I-. Norton & Company.c.122 36.-. Ihnt. 1992. 2005. M A "AlIoc:ahon Assets and DIscounting Cash Flol'o's: Pension I'lan Finance.>ion RClls· lted" hmTII<l1 of Fm"IIt. t..'"' £HIII/llmf hlqlllrr.\ilOI.900 22." iUllflrdl rif I-. 1980. 9(2).trtment or Labor.I· iI'S. Dcpanmc:nl of EconomlCli and Final1ce."'·."jJifllkjl/m~·$I· flrl 'Illd C""fHlI'lII.·. 53. a11(1 R. SUre!!e. D K.\'''O. ~ I "Taking the Powcr orlhe 401(kl..sk A. ~!!.rnu Wealth:· in Iml..cl Allocations: [. S \hlchell. and A IkrnJsck . G.' 1'"'("nl. "The Do:manu f<>r Rl)k) i\ . C Purker.:hlarbaunl.md J A Turner. ~237.AI(.A E. ~8(6). IT: JAJ I'm~.107.identt rrom Kan~as Board of Rcgenls Faeu h )' .l'·/I. Sill'ill. and G. Land S lianna..87-99. Soulherll Illinois Uni\er· (it) at Edl'oardSHIIc:. 2R9 .

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