Local earthquakes and households’ risk-taking: Evidence from the China Household Finance Survey

Abstract

This study examines the earthquakes’ effects on households’ risk-taking. Using the China Household Finance Survey data, local earthquakes are found to have negative, significant and short-term effects on risk-taking, which is measured by the probability of households’ participation in risky financial assets markets and the holding ratio. The possible channels are that earthquakes reduce people’s risk-taking by reinforcing their concerns about financial risks and future uncertainties. Besides, the study hypothetically discusses and empirically excludes investor sentiment explanations. In addition, earthquakes’ effects are more pronounced among households with higher wealth and income, and households with female, well-educated heads. Moreover, further discussions about households’ risk management regarding natural hazards are presented accordingly.