Does health affect portfolio choice?

Love, David A.; Smith, Paul A.

doi:10.1002/hec.1562

Cited by 97 publications

(63 citation statements)

References 31 publications

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“…Feinstein and Lin (2006), Edwards (2008), Love and Smith (2010), Cardak and Wilkins (2009) and Yogo (2012) use only self-reported health as a measure of health status and they find that a poor perceived health is negatively associated with stock market participation and with the share of risky investments in the portfolio. Atella et al (2012) consider several measures of health: perceived health status, a measure of objective health, weighted according to the disease's degree of severity, and a generated measure to proxy future health risk (defined as a function of risky behavior, asymptomatic Same as in Table 6.…”

Section: Conclusion and Discussionmentioning

confidence: 99%

“…Others consider the interplay between health and other circumstances which affect the life span horizon, such as aging (Coile & Milligan, 2009) or bequest motives (Feinstein & Lin, 2006). Finally, some papers propose models where health enters as a direct argument of the investor utility function, and the marginal utility of consumption is found to vary with health (among others, see Cardak & Wilkins, 2009;Edwards, 2008;Finkelstein, Luttmer, & Notowidigdo, 2008;Love & Smith, 2010;Rosen & Wu, 2004). Evidently, the relationship occurring between health status and portfolio choice is actively discussed in the literature, and the standpoint of researchers in the field is extremely heterogeneous.…”

Section: Introductionmentioning

confidence: 99%

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Health status and portfolio choice: Is their relationship economically relevant?

Bressan¹,

Pace

Pelizzon

2014

International Review of Financial Analysis

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Recent empirical work on individual portfolio choice focuses on the role of the individual's health in making financial decisions. The key idea is that, through precautionary saving or reducing investors' time horizon, health issues make people choose safer financial portfolios. This paper questions the empirical relevance of the link between health and portfolio choice, measured as stockownership and overall fraction of risky securities held. We handle with caution the findings from previous papers and ask whether data from the first wave of the Survey of Health, Aging and Retirement in Europe (SHARE) are able to clarify some of our doubts. We find that only poor self-reported health negatively impacts the portfolio choice, while other health measures (chronic conditions, limitations in daily activities of life, mental health) are irrelevant for investment decisions.

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Section: Conclusion and Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Health status and portfolio choice: Is their relationship economically relevant?

Bressan¹,

Pace

Pelizzon

2014

International Review of Financial Analysis

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“…The studies of Rosen and Wu (2004), Berkowitz and Qiu (2006) as well as Fan and Zhao (2009) find a strong relation between health status and portfolio choice. However, Love and Smith (2010) disentangle the relation between health status and portfolio choice by analyzing which part is causal and which is due to unobserved heterogeneity. They argue that health has no significant impact on portfolio choice.…”

Section: Introductionmentioning

confidence: 99%

Critical Illness Insurance in Life Cycle Portfolio Problems

Schendel

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-Technical SummaryThe first critical illness (CI) insurance (also known as dread disease insurance) was developed in South Africa in 1983. The insurance pays a previously fixed lump sum if the insured person is diagnosed with a critical illness from a list of insured illnesses. Although the CI insurance is becoming more popular, it is still rarely used in Germany compared with disability insurance or other health-related insurance products. The relatively low demand for CI insurance is surprising due to the possible benefits. To give an example, blindness or deafness are critical illnesses that are often covered by a CI insurance. These illnesses might or might not trigger a disability insurance and lead to large costs that are not fully covered by a health insurance. A handicapped-accessible house, books for blind persons, or a special computer produce large costs. Since the expected lifetime is usually not reduced, this messes up the financial planning. I model such illnesses with health shocks in the model. Cancer or a heart attack are examples for insurable critical illnesses that reduce the expected remaining lifetime and might or might not trigger a disability insurance as well. These illnesses also produce large costs, e.g. for medicine and health care. Mortality shocks in my model capture such illnesses. The seemingly huge benefits of the CI insurance raise the question why there is little demand for this type of insurance. To the best of my knowledge, there is no life cycle model explicitly considering such an insurance.I consider a life cycle consumption-investment-insurance problem in continuous time. The agent has to pay exogenously determined health expenses that can jump due to a critical illness of the agent. In order to avoid the excess health expenses, the agent can contract a CI insurance. The agent receives unspanned labor income and decides about the optimal consumption, investment, and insurance strategy. The financial market consists of a riskless bond and a stock. The time of death is random. The hazard rate of death can jump due to a mortality shock. A critical illness may lead to an increased mortality risk but this is not necessarily the case. In this work, I analyze whether the agent wants to contract the CI insurance or not. Moreover, I investigate the driving factors of the resulting CI insurance demand.The increased health expenses due to a shock have a crucial impact both for the aggregate resu...

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“…In this vein, Edwards (2008) shows that individuals who assigned a higher probability to the possibility that medical expenses would exhaust their household savings in the next five years held lower risky portfolio shares. Subsequent empirical studies that have used panel methods to control for unobserved heterogeneity find either no direct effect or a small direct effect of health status on portfolio choices (see for example, Gupta, 2007;Coile and Milligan, 2009;Fan and Zhao, 2009;Love and Smith, 2010). Cardak and Wilkins (2009) find that the relationship between poor health status and risky asset holding becomes insignificant once risk and time preference variables are controlled for, using the Household Income and Labour Dynamics in Australia (HILDA) Survey.…”

Section: Introductionmentioning

confidence: 99%

Household Portfolio Choices, Health Status and Health Care Systems: A Cross-Country Analysis Based on Share

2011

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Health risk is increasingly viewed as an important form of background risk that affects household portfolio decisions. However, its role might be mediated by the presence of a protective fullcoverage national health service that could reduce households' probability of incurring current and future out-of-pocket medical expenditures. We use SHARE data to study the influence of current health status and future health risk on the decision to hold risky assets, across ten European countries with different health systems, each offering a different degree of protection against outof-pocket medical expenditures. We find robust empirical evidence that perceived health status matters more than objective health status and, consistent with the theory of background risk, health risk affects portfolio choices only in countries with less protective health care systems. Furthermore, portfolio decisions consistent with background risk models are observed only with respect to middle-aged and highly-educated investors.

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Does health affect portfolio choice?

Cited by 97 publications

References 31 publications

Health status and portfolio choice: Is their relationship economically relevant?

Health status and portfolio choice: Is their relationship economically relevant?

Critical Illness Insurance in Life Cycle Portfolio Problems

Household Portfolio Choices, Health Status and Health Care Systems: A Cross-Country Analysis Based on Share

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