Cognitive Abilities and Portfolio Choice
University of Venice Economics Working Paper No. 19/WP/2008
47 Pages Posted: 30 Sep 2008
Date Written: September 27, 2008
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.
Keywords: cognitive abilities, stockholding, portfolio choice
JEL Classification: E2, D8, G1
Suggested Citation: Suggested Citation