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Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations

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  • Schwandt, Hannes

    (Northwestern University)

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

  • Schwandt, Hannes, 2014. "Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations," IZA Discussion Papers 8298, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8298
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    More about this item

    Keywords

    stock market; wealth shocks; retiree health;
    All these keywords.

    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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