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Does Health Affect Portfolio Choice?

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Abstract

Previous studies find a strong and positive empirical connection between health status and the share of risky assets held in household portfolios. But is this relationship truly causal, in the sense that households respond to changes in health by altering their portfolio allocation, or does it simply reflect unobserved differences across households? We find that the link between health and risky assets depends crucially on the econometric treatment of unobserved heterogeneity. Once we account adequately for unobserved household differences, we find no statistically significant effect of health status on either portfolio allocations or ownership among older households (those with respondents 70 and older) in the Health and Retirement Study. Younger households, in contrast, do seem to adjust their portfolios on both the extensive and intensive margins in response to health shocks.

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Bibliographic Info

Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2008-11.

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Length: 22 pages
Date of creation: May 2008
Date of revision:
Publication status: Forthcoming in Health Economics.
Handle: RePEc:wil:wileco:2008-11

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Keywords: Household portfolios; Health; Risk;

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References

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  1. Dimitris Christelis & Tullio Jappelli & Mario Padula, 2008. "Cognitive Abilities and Portfolio Choice," Working Papers 2008_19, Department of Economics, University of Venice "Ca' Foscari".
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Citations

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Cited by:
  1. Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2010. "A structural analysis of the health expenditures and portfolio choices of retired agents," Swiss Finance Institute Research Paper Series 10-29, Swiss Finance Institute.
  2. Atella, Vincenzo & Brunetti, Marianna & Maestas, Nicole, 2012. "Household portfolio choices, health status and health care systems: A cross-country analysis based on SHARE," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1320-1335.
  3. James Enright & Grant M Scobie, 2010. "Healthy, Wealthy and Working: Retirement Decisions of Older New Zealanders," Treasury Working Paper Series 10/02, New Zealand Treasury.
  4. Maude Toussaint-Comeau & Jonathan Hartley, 2009. "Health and the savings of insured versus uninsured, working-age households in the U.S," Working Paper Series WP-09-23, Federal Reserve Bank of Chicago.
  5. Fan, Elliott & Zhao, Ruoyun, 2009. "Health status and portfolio choice: Causality or heterogeneity?," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1079-1088, June.
  6. Schendel, Lorenz S., 2014. "Critical illness insurance in life cycle portfolio problems," SAFE Working Paper Series 44, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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