Economics at your fingertips  

Does cognitive aging affect portfolio choice?

Tae-Young Pak () and Patryk Babiarz ()

Journal of Economic Psychology, 2018, vol. 66, issue C, 1-12

Abstract: The association between cognitive aging and portfolio reallocation towards riskless assets is well documented. Past studies have suggested several mechanisms such as rising information costs or preference changes to explain the shift away from financial risk. However, these narratives appear to be at odds with the evidence that some domains of cognitive functions improve with age, and many individuals are not cognizant of their intellectual decline. Using data from the Health and Retirement Study, this study examines whether or not cognitive decline leads to a safer portfolio choice and how much can be attributed to causal. Our empirical analysis develops an instrumental variable approach that exploits seasonal variation in cognition triggered by a seasonal affective disorder. While the fixed effects estimates show strong positive correlations between cognition and stock ownership, these estimates lose significance in the instrumental variable models. Our findings suggest that cognitive function is not a major determinant of portfolio riskiness.

Keywords: Cognitive functioning; Portfolio reallocation; Stock market participation; Seasonal affective disorder (search for similar items in EconPapers)
JEL-codes: E2 D8 G1 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.joep.2018.03.001

Access Statistics for this article

Journal of Economic Psychology is currently edited by G. Antonides and D. Read

More articles in Journal of Economic Psychology from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-11-29
Handle: RePEc:eee:joepsy:v:66:y:2018:i:c:p:1-12