Do Older Investors Make Better Investment Decisions?

George M Korniotis and Alok Kumar
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George M Korniotis: School of Business Administration, University of Miami
Alok Kumar: School of Business Administration, University of Miami, and University of Texas at Austin

The Review of Economics and Statistics, 2011, vol. 93, issue 1, 244-265

Abstract: This paper examines the investment decisions of older individual investors. We find that older and experienced investors are more likely to follow rules of thumb that reflect greater investment knowledge. However, older investors are less effective in applying their investment knowledge and exhibit worse investment skill, especially if they are less educated, earn lower income, and belong to minority racial/ethnic groups. Overall, the adverse effects of aging dominate the positive effects of experience. These results indicate that older investors' portfolio decisions reflect greater knowledge about investing, but investment skill deteriorates with age due to the adverse effects of cognitive aging. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2011
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