Understanding cross-regional differences in stock market participation: the role of risk preferences

Abstract

Previous research on the effect of risk preferences on stock market participation (SMP) has applied an individual-based approach without modelling how contextual factors may influence individuals’ attitudes. By adopting an ‘interactionist approach’, this article explores the role of the region’s risk attitudes in the SMP decision, together with individuals’ risk preferences. Using a sample of 57,491 individuals living in 60 European regions in 2013 and applying multilevel modelling, the results confirm that the region’s risk attitudes, together with individual characteristics, are driving forces of SMP. Therefore, future policies and reforms aimed at increasing SMP should take into account not only the existence of individual differences among Europeans but also the existence of differences in cultural region factors.