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

See all articles by David Blanchett

David Blanchett

Morningstar Investment Management

Michael S. Finke

The American College

Michael Guillemette

Texas Tech University - Department of Personal Financial Planning

Date Written: January 25, 2018

Abstract

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

Suggested Citation

Blanchett, David and Finke, Michael S. and Guillemette, Michael, The Effect of Advanced Age and Equity Values on Risk Preferences (January 25, 2018). Blanchett, D., Finke, M and Guillemette, M. (2018). The Effect of Advanced Age and Equity Values on Risk Preferences. Journal of Behavioral Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2961481 or http://dx.doi.org/10.2139/ssrn.2961481

David Blanchett

Morningstar Investment Management ( email )

22 W Washington
Chicago, IL 60602
United States
859-492-5637 (Phone)

HOME PAGE: http://www.davidmblanchett.com

Michael S. Finke

The American College ( email )

Bryn Mawr, PA 19010
United States

Michael Guillemette (Contact Author)

Texas Tech University - Department of Personal Financial Planning ( email )

1301 Akron Ave, HS-260
Box 41210
Lubbock, TX 79409-1210
United States

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