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Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations

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  • Hannes Schwandt

Abstract

Do wealth shocks affect the health of the elderly in developed countries? The economic literature is skeptical about such effects which have so far only been found for poor retirees in poor countries. In this paper I show that wealth shocks also matter for the health of wealthy retirees in the US. I exploit the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stock-holding retirees. Using data from the Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These constructed wealth shocks are highly predictive of changes in reported wealth. And they strongly affect health outcomes. A 10% wealth shock leads to an improvement of 2-3% of a standard deviation in physical health, mental health and survival rates. Effects are heterogeneous across physical health conditions, with most pronounced effects for the incidence of high blood pressure, smaller effects for heart problems and no effects for arthritis, diabetes, lung diseases and cancer. The comparison with the cross-sectional relationship of wealth and health suggests that the estimated effects of wealth shocks are larger than the long-run wealth elasticity of health.

Suggested Citation

  • Hannes Schwandt, 2014. "Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations," CEP Discussion Papers dp1281, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1281
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    Cited by:

    1. John Gathergood & Eleonora Fichera, "undated". "House Prices, Home Equity and Health," Discussion Papers 12/07, University of Nottingham, School of Economics.
    2. Italo Colantone & Rosario Crinò & Laura Ogliari, 2015. "The Hidden Cost of Globalization: Import Competition and Mental Distress," BAFFI CAREFIN Working Papers 1511, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    3. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2017. "Labour supply responses to financial wealth shocks: evidence from Italy," IFS Working Papers W17/29, Institute for Fiscal Studies.
    4. repec:spr:jopoec:v:30:y:2017:i:4:d:10.1007_s00148-017-0651-2 is not listed on IDEAS
    5. Eleonora Fichera & John Gathergood, 2015. "Do Wealth Shocks Affect Health? New Evidence from the Housing Boom," Discussion Papers 2015/20, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    6. Antonova, Liudmila & Bucher-Koenen, Tabea & Mazzonna, Fabrizio, 2014. "Macroeconomic Crunches During Working Years and Health Outcomes Later in Life," MEA discussion paper series 201420, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

    More about this item

    Keywords

    Retiree health; wealth shocks; stock market;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • I10 - Health, Education, and Welfare - - Health - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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