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Subjective Life Horizon and Portfolio Choice

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  • Spaenjers , Christophe

  • Spira, Sven Michael

Abstract

Using data from a U.S. household survey, we examine the empirical relation between subjective life horizon (i.e., the self-reported expectation of remaining life span) and portfolio choice. We find that equity portfolio shares are higher for investors with longer horizons, ceteris paribus, in line with theoretical predictions. This result is robust to controlling for optimism and health status, accounting for the endogeneity of equity market participation, or instrumenting subjective life horizon with parental survival. Finally, we show that bequest motives can offset the effects of a shortening horizon on portfolio allocation.

Suggested Citation

  • Spaenjers , Christophe & Spira, Sven Michael, 2013. "Subjective Life Horizon and Portfolio Choice," HEC Research Papers Series 985, HEC Paris.
    • Handle: RePEc:ebg:heccah:0985
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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