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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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  • David Love & Paul A. Smith, 2008. "Does Health Affect Portfolio Choice?," Department of Economics Working Papers 2008-11, Department of Economics, Williams College.
  • Handle: RePEc:wil:wileco:2008-11
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    More about this item

    Keywords

    Household portfolios; Health; Risk;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I10 - Health, Education, and Welfare - - Health - - - General

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