The Effect of Advanced Age and Equity Values on Risk Preferences
Blanchett, D., Finke, M and Guillemette, M. (2018). The Effect of Advanced Age and Equity Values on Risk Preferences. Journal of Behavioral Finance, Forthcoming
22 Pages Posted: 2 May 2017 Last revised: 26 Jan 2018
Date Written: January 25, 2018
This paper analyzes the effect equity values and age have on the risk aversion of participants in U.S. defined contribution plans using a unique dataset with daily responses to a risk tolerance questionnaire. We find that older investors are more risk averse compared to younger cohorts when controlling for the level of the S&P 500 Index, account balance, income, savings percentage, equity percentage and allocation fund percentage. We also find that risk preferences are influenced by the level of the S&P 500, but only in advanced age. This finding is consistent with decreasing absolute risk aversion when wealth is proxied by the S&P 500 Index.
Keywords: risk preferences, risk aversion, stock prices, old age, financial planning
JEL Classification: D81, E70, G40, D10, D90, G11
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