The effect of age on portfolio choices: evidence from an Italian pension fund*

Giuseppe Cappelletti, Giovanni Guazzarotti and Pietro Tommasino

Journal of Pension Economics and Finance, 2014, vol. 13, issue 4, 389-419

Abstract: According to optimal portfolio theories, investors should reduce their exposure to stock market risk as they grow old. Indeed, older workers, with only a few years left before retirement, are particularly vulnerable to unexpected falls in stock prices. Despite the theoretical and – as shown by the recent financial crisis – policy relevance of the issue, empirical evidence on this topic has been scant and inconclusive. The aim of the present paper is to assess the effect of age on portfolio choices, using a new panel dataset from an Italian defined-contribution pension plan. We find that on average holdings of risky assets do indeed significantly decrease with age. However, the effect is non-linear, being much stronger in the last part of one's career. Moreover, we also document that inertial behaviour is quite widespread, and can be very costly. Results are confirmed when we control for individual fixed effects and cohort effects.

Date: 2014
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Working Paper: The effect of age on portfolio choices: evidence form an Italian pension fund (2010)
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