October 31, 2004
By Janet Kidd Stewart
When it comes to investing, who we are may matter more than what we know. Cultural and religious background plays a bigger role than education in determining investors' attitudes about money, according to an article in a forthcoming collection of scholarly works by Oxford University Press titled "The Sociology of Financial Markets."
The weighty tome takes on such issues as the role social networks play on trading behavior in financial markets and the decision-making process of the Federal Reserve.
And in a chapter devoted to the role cultural bias plays in investor decision-making, Werner DeBondt, a behavioral finance professor at DePaul University in Chicago, reviews a study of Western European investors that found stark differences among nationalities and religions.
"Culture matters," said DeBondt. "Certain groups are clearly underrepresented in equities."
Studies of U.S. investors have found similar cultural bias. Even after controlling for income, black and Hispanic investors are substantially underrepresented in the stock market compared with their white counterparts, for example.
Just 13 percent of Hispanics earning at least $75,000 a year owned common stocks in 2003, compared with 18 percent for the general U.S. population, according to a coming study by Mediamark Research for Hispanic Business Inc., a market research firm. Fourteen percent of affluent Hispanics owned mutual funds, while 21 percent of the wider U.S. population owned them last year. Hispanic investors in the study were found to concentrate more of their wealth in their homes and their own businesses.
Once you realize you may be investing according to type, there is a case to be made for learning to change your habits.