Financial Risk Propensity, Business Cycles and Perceived Risk Exposure

We analyse whether individual financial risk propensity changes over time with background financial conditions, as well as personal and subjective portfolio risk exposure. We elicit risk propensity from six different self-assessed facets collected in a long panel data set from the DNB Household Survey, annually covering the period 1995-2015. Risk propensity is generally higher during periods of economic growth and lower during periods of recession, but is untrended when elicited, using questions referring to safe investments. Our risk propensity measure is also higher following positive stock market returns or subjectively large risk exposure in own past investments.