Aurora Borealis
1 November 2013 CFA Institute Journal Review

Immigrant Household Investment Behavior and Country of Origin: A Study of Immigrants to the United States (Digest Summary)

  1. Sadaf Aliuddin, CFA

In the United States, differences exist between immigrant and native households in economic decision making. But the existing literature treats immigrants as a homogeneous group, whereas the authors have further analyzed the relationship between the immigrants’ countries of origin and their participation in financial asset markets.

What’s Inside?

Much of the existing literature addresses the differences in economic decision making, including investment behavior, between immigrant and native households in the United States. The authors demonstrate that the immigrant population itself is a heterogeneous group and differences in economic participation are related to immigrants’ countries of origin. These differences are largely driven by information costs and access to information. Their hypothesis on information access suggests that immigrants from countries with greater informational exchange and contact with the United States are more likely to participate in capital markets, including immigrants from English-speaking countries and those with financial markets highly interlinked with the United States.

How Is This Research Useful to Practitioners?

The immigrant population constitutes a sizeable 11.1% of the total population of the United States, as determined in the 2000 census. Therefore, it is important for investment practitioners to understand their investment behavioral patterns. The authors indicate that immigrants from countries with greater links with the United States, including English-speaking countries, have rates of participation similar to those of people born in the United States. They surmise that this pattern of behavior is related to greater access to information.

Interestingly, they find that immigrants from Hong Kong tend to have a high level of stock holdings. Similarly, immigrants from Eastern European countries hold a relatively high level of fixed-income securities. The length of time an immigrant has been in the United States decreases the negative effect regarding holding financial assets, including stocks and mutual funds.

How Did the Authors Conduct This Research?

The authors use the longitudinal panel data from the Survey of Income and Program Participation (SIIP) conducted by the US Census Bureau. SIIP collects information on households, including background, household structure, family relationships, and holdings of financial assets, including stocks, bonds, mutual funds, and retirement plans. For immigrants, SIIP also includes information on their legal status, country of origin, and year of arrival in the United States. This survey is conducted every four months, and the authors have used the panel sets from 2001 to 2003, which captures both downturn and upturn years in the stock market. The sample size is composed of approximately 36,000 native and 5,000 immigrant households (i.e., approximately 12.8% immigrant households, which is nearly the same proportion determined by the 2000 census data.

The authors first test whether immigrants as a group have different investment behaviors compared with those native to the United States. Second, they examine whether the investment behavior of the immigrant population is affected by their country of origin. They conclude that information cost and information access are key factors in whether immigrants hold financial assets and what assets they choose.

Abstractor’s Viewpoint

The investment culture in the country of origin of immigrants plays a major role in forming their views on savings, investments, and risk appetite. Additionally, religious backgrounds and beliefs also play a significant role in economic decision making, which is particularly true for Islamic societies.

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