Macroeconomic Conditions and Australian Financial Risk Attitudes, 2001–2010

Abstract

This paper employed panel data from the 2001-10 waves of the Household, Income, and Labor Dynamics in Australia (HILDA) survey to investigate the financial risk attitudes of 10,000 individuals across 6,839 households. Ordered logit models including individual and household random effects tested for changes in risk tolerance while focusing on the impact of transitory macroeconomic conditions and controlling for individual demographic and socioeconomic characteristics. We found Australians generally reduced their tolerance for risk, though higher levels of education, wealth, good health, and being self-employed indicated the increased likelihood of risk tolerance. We found macroeconomic conditions jointly significant in determining financial risk attitudes. However, the innate demographic and socioeconomic characteristics of individuals were more important at the margin.