The Only-Child’s Portfolio Allocation in China: Expectations and an Empirical Investigation Based on Trust and Risk Attitudes

Abstract

Over the past 30 years, China has implemented a radical one-child policy for a couple to control overpopulation growth. Although China abolished the one-child policy in 2015 and replaced it with a comprehensive two-child policy, the massive one-child generation, which born during the one-child policy, has grown into adulthood and become a pillar of society in all spheres. So how will the only-child in adulthood allocate portfolio, and whether there is a difference between the portfolio of the only child and the non-only-child? These problems have become an important part of clarifying the assets of Chinese householders’ portfolio allocation. Based on the CFPS2010 and CHFS2011 data, this paper investigates the only-child’s portfolio allocation and finds that: householders headed by the only-child are significantly less likely to invest in stocks and hold a market value than householders headed by the non-only-child, and it is still valid after the instrumental variable method is used to overcome the endogenous bias. This means that the only-child is more risk-averse than the non-only-child in portfolio allocation. The main causes may be that, because of lacking social interaction and resource dilution from siblings, the only-child is more averse to risks and tends to trust others less than the non-only-child. Furthermore, the empirical test finds that householders’ trust and risk preference significantly improve risky asset market participation, and it is proved that the only-child trusts others significantly less than the non-only-child, but there is no significant difference between the only-child and the non-only-child in risk attitudes. This paper may be the first literature to investigate the only-child’s portfolio allocation, which not only enriches the research on Chinese householders’ portfolio allocation, moreover, but also greatly supplements the literature on the socioeconomic impact of China’s one-child policy. At the policy level, the only-child is more risk-averse, which means that micro-financial enterprises may need to pay attention to the portfolio allocation of the only-child, and target at innovative and marketing financial products to meet the needs of the only-child. At the same time, with the large-scale only-child growing up, their behavioral characteristics of more risk-averse may have a significant impact on the market structure of financial products. Therefore, policy authorities may also need to pay close attention to risks which are implied in the changes of the financial structure, as well as its impact on macroeconomic policies.