Advanced Search
MyIDEAS: Login to save this paper or follow this series

Cognitive abilities and portfolio choice

Contents:

Author Info

  • Christelis, Dimitris
  • Jappelli, Tullio
  • Padula, Mario

Abstract

We study the relation between cognitive abilities and stockholding using the recent Survey of Health, Ageing and Retirement in Europe (SHARE), which has detailed data on wealth and portfolio composition of individuals aged 50+ in 11 European countries and three indicators of cognitive abilities: mathematical, verbal fluency, and recall skills. We find that the propensity to invest in stocks is strongly associated with cognitive abilities, for both direct stock market participation and indirect participation through mutual funds and retirement accounts. Since the decision to invest in less information-intensive assets (such as bonds) is less strongly related to cognitive abilities, we conclude that the association between cognitive abilities and stockholding is driven by information constraints, rather than by features of preferences or psychological traits. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/43266/1/599232781.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2008/35.

as in new window
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:zbw:cfswop:200835

Contact details of provider:
Postal: House of Finance, Grüneburgplatz 1, HPF H5, D-60323 Frankfurt am Main
Phone: +49 (0)69 798-30050
Fax: +49 (0)69 798-30077
Email:
Web page: http://www.ifk-cfs.de/
More information through EDIRC

Related research

Keywords: Cognitive Abilities; Stockholding; Portfolio Choice;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe, 2007. "Are Risk Aversion and Impatience Related to Cognitive Ability?," IZA Discussion Papers 2735, Institute for the Study of Labor (IZA).
  2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  3. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 158-72, March.
  4. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
  5. Maarten van Rooij & Annamaria Lusardi & Rob Alessie, 2007. "Financial Literacy and Stock Market Participation," NBER Working Papers 13565, National Bureau of Economic Research, Inc.
  6. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Financial Literacy and Planning: Implications for Retirement Wellbeing," DNB Working Papers, Netherlands Central Bank, Research Department 078, Netherlands Central Bank, Research Department.
  7. Arturo Estrella, 1997. "A new measure of fit for equations with dichotomous dependent variables," Research Paper, Federal Reserve Bank of New York 9716, Federal Reserve Bank of New York.
  8. Mankiw, N. Gregory & Zeldes, Stephen P., 1991. "The consumption of stockholders and nonstockholders," Journal of Financial Economics, Elsevier, Elsevier, vol. 29(1), pages 97-112, March.
  9. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, SUNY-Oswego, Department of Economics, number emetr2, Spring.
  10. Fatih Guvenen, 2005. "Reconciling Conflicting Evidence on the Elasticity of Intertemporal Substitution: A Macroeconomic Perspective," Macroeconomics, EconWPA 0507005, EconWPA.
  11. Dana Goldman & Nicole Maestas, 2005. "Medical Expenditure Risk and Household Portfolio Choice," NBER Working Papers 11818, National Bureau of Economic Research, Inc.
  12. John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 55(3), pages 1163-1198, 06.
  13. Janet Currie & Brigitte C. Madrian, 1998. "Health, Health Insurance and the Labor Market," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 27, Northwestern University/University of Chicago Joint Center for Poverty Research.
  14. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(3), pages 665-690, April.
  15. Dimitrios Christelis & Tullio Jappelli & Mario Padula, 2006. "Cognitive Abilities and Portfolio Choice," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 157, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  16. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
  17. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  18. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  19. Bernheim, B. Douglas & Garrett, Daniel M., 2003. "The effects of financial education in the workplace: evidence from a survey of households," Journal of Public Economics, Elsevier, Elsevier, vol. 87(7-8), pages 1487-1519, August.
  20. Hanushek, Eric A. & Woessmann, Ludger, 2009. "Do Better Schools Lead to More Growth? Cognitive Skills, Economic Outcomes, and Causation," IZA Discussion Papers 4575, Institute for the Study of Labor (IZA).
  21. Orazio Attanasio & James Banks & Sarah Tanner, 1998. "Asset Holding and Consumption Volatility," NBER Working Papers 6567, National Bureau of Economic Research, Inc.
  22. Annette Vissing-Jorgensen, 2004. "Perspectives on Behavioral Finance: Does "Irrationality" Disappear with Wealth? Evidence from Expectations and Actions," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 139-208 National Bureau of Economic Research, Inc.
  23. Rosen, H.S.Harvey S. & Wu, Stephen, 2004. "Portfolio choice and health status," Journal of Financial Economics, Elsevier, Elsevier, vol. 72(3), pages 457-484, June.
  24. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(1), pages 73-92, February.
  25. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2549, C.E.P.R. Discussion Papers.
  26. John Y. Campbell, 2006. "Household Finance," NBER Working Papers 12149, National Bureau of Economic Research, Inc.
  27. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 19(4), pages 25-42, Fall.
  28. Dimitrios Christelis & Tullio Jappelli & Mario Padula, 2005. "Wealth and Portfolio Composition," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 132, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  29. Bogan, Vicki, 2006. "Stock Market Participation and the Internet," Working Papers, Cornell University, Department of Applied Economics and Management 127044, Cornell University, Department of Applied Economics and Management.
  30. Brad M. Barber & Terrance Odean, 2001. "Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(1), pages 261-292, February.
  31. John R. Graham & Campbell R. Harvey & Hai Huang, 2009. "Investor Competence, Trading Frequency, and Home Bias," Management Science, INFORMS, INFORMS, vol. 55(7), pages 1094-1106, July.
  32. Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 26, pages 472-485.
  33. Esther Duflo & Emmanuel Saez, 2000. "Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues' Choices," NBER Working Papers 7735, National Bureau of Economic Research, Inc.
  34. Engstr M, Stefan & Westerberg, Anna, 2003. "Which individuals make active investment decisions in the new Swedish pension system?," Journal of Pension Economics and Finance, Cambridge University Press, Cambridge University Press, vol. 2(03), pages 225-245, November.
  35. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
  36. Karen E. Dynan & Dean M. Maki, 2001. "Does stock market wealth matter for consumption?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-23, Board of Governors of the Federal Reserve System (U.S.).
  37. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, American Economic Association, vol. 94(3), pages 526-556, June.
  38. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2006. "Who is “Behavioral”? Cognitive Ability and Anomalous Preferences," Levine's Working Paper Archive 122247000000001334, David K. Levine.
  39. Agar Brugiavini & Tullio Jappelli & Guglielmo Weber, 2002. "The Survey on Health, Aging and Wealth," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 86, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  40. Nicholas Barberis & Ming Huang & Richard H. Thaler, 2006. "Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing," American Economic Review, American Economic Association, American Economic Association, vol. 96(4), pages 1069-1090, September.
  41. Engström, Stefan & Westerberg, Anna, 2003. "Which individuals make active investment decisions in the new Swedish pension system?," Working Paper Series in Economics and Finance 527, Stockholm School of Economics, revised 21 Jul 2003.
  42. Mark Grinblatt, 2001. "How Distance, Language, and Culture Influence Stockholdings and Trades," Journal of Finance, American Finance Association, American Finance Association, vol. 56(3), pages 1053-1073, 06.
  43. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  44. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(2), pages 145-166, Spring.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:200835. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.