Household’s Happiness and Financial Market Participation

ABSTRACT Using the 2014 China Family Panel Studies, this study examines the impact of household’s subjective well-being on financial decision. It investigates whether happiness affects household’s decision to participate in risky financial market. This study finds a non-linear relationship between happiness and the probability of financial market participation. The probability of risky financial market participation increases as self-reported happiness measure increases. However, the probability declines slightly at the highest level of self-reported happiness measure. In order to address a potential endogeneity problem, this study uses the Two Stage Least Squaredmodel with two sets of instrumental variables. These findings provide a strong support for the hypothesis that a person’s subjective well-being is one of the major determinants of household’s economic behaviours, and provide an important implication on household portfolio research.