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The Effect of Advanced Age and Equity Values on Risk Preferences

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  • David Blanchett
  • Michael Finke
  • Michael Guillemette

Abstract

The authors analyze 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. They find that older investors are more risk averse compared with younger cohorts when controlling for the level of the S&P 500 Index, account balance, income, savings percentage, equity percentage and allocation fund percentage. They 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.

Suggested Citation

  • David Blanchett & Michael Finke & Michael Guillemette, 2018. "The Effect of Advanced Age and Equity Values on Risk Preferences," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 19(4), pages 434-441, October.
    • Handle: RePEc:taf:hbhfxx:v:19:y:2018:i:4:p:434-441
    DOI: 10.1080/15427560.2018.1431884
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    Cited by:

    1. Dorothea Schäfer & Michael Stöckel & Henriette Weser, 2020. "Crisis Impact on the Diversity of Financial Portfolios: Evidence from European Citizens," Discussion Papers of DIW Berlin 1899, DIW Berlin, German Institute for Economic Research.
    2. Caterina Cruciani & Gloria Gardenal & Giuseppe Amitrano, 2022. "Risk Tolerance Tools: From Academia to Regulation and Back," Springer Books, in: Understanding Financial Risk Tolerance, chapter 0, pages 39-78, Springer.
    3. Seth, Himanshu & Talwar, Shalini & Bhatia, Anuj & Saxena, Akanksha & Dhir, Amandeep, 2020. "Consumer resistance and inertia of retail investors: Development of the resistance adoption inertia continuance (RAIC) framework," Journal of Retailing and Consumer Services, Elsevier, vol. 55(C).
    4. Jiaer He & Roberto Rivera, 2023. "A Modeling Approach of Return and Volatility of Structured Investment Products with Caps and Floors," Papers 2311.06282, arXiv.org.
    5. Schäfer, Dorothea & Stephan, Andreas & Weser, Henriette, 2023. "Crisis stress for the diversity of financial portfolios — evidence from European households," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 330-347.

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