Household’s Happiness and Financial Market Participation

ABSTRACT

Using the 2014 China Family Panel Studies, this study examines the impact of household’s subjective well-being on financial decision. It investigates whether happiness affects household’s decision to participate in risky financial market. This study finds a non-linear relationship between happiness and the probability of financial market participation. The probability of risky financial market participation increases as self-reported happiness measure increases. However, the probability declines slightly at the highest level of self-reported happiness measure. In order to address a potential endogeneity problem, this study uses the Two Stage Least Squaredmodel with two sets of instrumental variables. These findings provide a strong support for the hypothesis that a person’s subjective well-being is one of the major determinants of household’s economic behaviours, and provide an important implication on household portfolio research.

KEYWORDS:

• Happiness
• financial market participation
• household finance
• CFPS
• TSLS

JEL CLASSIFICATION:

• A13
• D12
• D8
• G11

Disclosure Statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This manuscript is sponsored by Humanities and Social Science Fund of Ministry of Education of China [Fund No. 18YJA790017].