Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations

Abstract

Do wealth shocks affect the health of elderly in developed countries? 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 1998-2011 Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These wealth shocks predict wealth changes and strongly affect health outcomes. A 10% wealth loss leads to an impairment of 2-3% of a standard deviation in physical health, mental health and survival rates.

Keywords: health, Mortality, Retirees, Stock market, Wealth shocks

JEL Classification: G10, I10, J14