Institutional and Human-Nature Determinants of Financial Investment Behavior Across European Households

Abstract

This paper explores the institutional and human-nature determinants of financial investment behavior across households from 25 European countries by employing the seventh wave of the SHARE-ERIC survey. We find that households’ investment behavior in shares or stocks is strongly associated with other financial decisions, such as the investments in retirement accounts and life insurance policies, gender and the computer usage skills. Besides individual characteristics widely studied in the literature and associated with investement propensity in financial instruments, we document that institutional factors matter too. Our findings reveal that the longer individuals had a period of exposure to a socialist system, the lesser their intensity to invest in the stock market in comparison with their capitalist counterparts. One noteworthy result is that the individuals from former communist countries that experienced the fastest and most successful transition had the lowest predilection to invest in stock market. In the same vein, weak institutional frameworks and left-wing ideological orientation of national governments are linked with lower probability of an individual to make financial investments in shares or stocks. In addition, we find that households from Protestant and Orthodox countries are more inclined to have investments in financial instruments in comparison with their Catholic counterparts. Last but not least, while ethnic, linguistic and religious fractionalization indexes play a negative role on investment behavior, national cultural values and dimensions exert a significant role in households’ investment mentality.