Parental death in childhood and stock market participation: Cross-cultural insights

Abstract

This paper examines cross-country differences in the relationship between traumatic experience in childhood and household stock market participation. We find that US households that experience the death of a parent during childhood are less likely to participate in the stock market. Conversely, experiencing parental death in childhood does not affect stockholdings in China. Further analyses show that the results can be partially explained by the cultural differences between the two countries. Specifically, due to China’s emphasis on collectivistic values, Chinese bereaved children are less sensitive to traumatic experience and more likely to receive financial support from in-group members that can “cushion” the adverse impact of parental death. We obtain similar conclusions out-of-sample when extending the analyses to Korean versus English households as well as to other European countries. Overall, our paper highlights novel interactions between personal experience and the cultural environment in shaping financial decision-making behavior.