Three Essays on U.S. Households Investment and Economic Behavior: Crypto Investments, Green Financial Advisory and Alternative Investment Decisions

This dissertation aims to expand our understanding of how innovative financial products, including cryptocurrencies, sustainable investments (ESG), and alternative investments, drive U.S. household financial decisions and how these decisions are associated with financial well-being, financial advisory fees, and economic and inflationary expectations of households. The findings of these papers provide new insights and policy implications for household investment behaviors if they invest in cryptos, ESG-related products, and alternative investments. Each essay in the dissertation uses the theoretical framework to analyze the U.S. household’s investment behavior. The first essay employs the Salience theory of Choice under uncertainty (Bordalo et al., 2012) to explore the connection between household financial well-being and cryptocurrency investments using UAS data from 2015 to 2018. The Pooled regression model based on the Chow test determined the appropriate alternative models, which found that financial well-being lowers the probability of cryptocurrency investment decisions. The heteroskedasticity problem was addressed with the help of Bootstrapping, Feasible Generalised Least square (FGLS), and Robust HCCM. However, results were consistent after solving the heteroskedasticity problem, and households’ financial well-being was negatively associated with crypto asset ownership in their portfolios. Further, the interaction of crypto investment and financial advice did not moderate the association between crypto ownership and households’ financial well-being. This indicates that financial advice gives general advantages but does not create significant changes between crypto ownership and financial well-being. Bitcoin literacy failed to demonstrate any difference in its positive relationship between crypto ownership and households' financial well-being regardless of crypto ownership status. The second essay employs the Value-Belief-Norm (VBN) theory (Stern et al., 1999) to study financial advice, social preferences, and financial literacy on U.S. households' decisions to pay higher investment fees for sustainable investments. The analysis includes data from the 2021 National Financial Capability Study (NFCS) Investor Survey across 1,840 households, demonstrating that particular investors will accept premium fees supporting ESG initiatives. Individuals who explained that their social preferences describe their investment behaviors towards sustainable investing were statistically positively associated with high investment fees. Both investors with high objective and subjective financial literacy did not demonstrate significant relationships with their investment fees. However, a negative relationship existed between fees above 0.5% and 4% among participants who scored well on objective financial literacy measures. Implementing financial advisors as advisory investment fee providers showed a negative statistical connection to investment fees exceeding 0.5% to 4%. This research shows that understanding finances affects sustainable investment decisions through challenges to classical risk-return financial models. The third essay employs prospect theory (Tversky & Kahneman, 1979). Household choices regarding alternative investments are explained by their economic and inflation expectations as measured in the United States. Households invest in high-risk opportunities such as private equity or hedge funds when they show optimistic economic expectations. Real estate and commodities have become favored investments by investors worried about inflation. Also, financial advisors can affect these decisions when households experience uncertainty about their expectations. This study employs Survey of Consumer Finance (SCF) data from 2010-2020 cross-sectional waves to examine household expectations and determine how economic and inflation expectations impact households’ alternative investment decisions. These three essays and their theoretical views create future research potential by expanding the household financial decision literature through a complete understanding of U.S. household investment choices related to crypto, ESG, and alternative investments.