IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp8298.html
   My bibliography  Save this paper

Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations

Author

Listed:
  • Schwandt, Hannes

    (Northwestern University)

Abstract

Do wealth shocks affect the health of the elderly in developed countries? The economic literature is skeptical about such effects which have so far only been found for poor retirees in poor countries. In this paper I show that wealth shocks also matter for the health of wealthy retirees in the US. 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 Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These constructed wealth shocks are highly predictive of changes in reported wealth. And they strongly affect health outcomes. A 10% wealth shock leads to an improvement of 2-3% of a standard deviation in physical health, mental health and survival rates. Effects are heterogeneous across physical health conditions, with most pronounced effects for the incidence of high blood pressure, smaller effects for heart problems and no effects for arthritis, diabetes, lung diseases and cancer. The comparison with the cross-sectional relationship of wealth and health suggests that the estimated effects of wealth shocks are larger than the long-run wealth elasticity of health.

Suggested Citation

  • Schwandt, Hannes, 2014. "Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations," IZA Discussion Papers 8298, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8298
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp8298.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andries De Grip & Maarten Lindeboom & Raymond Montizaan, 2012. "Shattered Dreams: The Effects of Changing the Pension System Late in the Game," Economic Journal, Royal Economic Society, vol. 122(559), pages 1-25, March.
    2. Anderson, Michael L., 2008. "Multiple Inference and Gender Differences in the Effects of Early Intervention: A Reevaluation of the Abecedarian, Perry Preschool, and Early Training Projects," Journal of the American Statistical Association, American Statistical Association, vol. 103(484), pages 1481-1495.
    3. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
    4. Anne Case, 2004. "Does Money Protect Health Status? Evidence from South African Pensions," NBER Chapters, in: Perspectives on the Economics of Aging, pages 287-312, National Bureau of Economic Research, Inc.
    5. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
    6. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    7. Nicole Maestas, 2010. "Expectations and Realizations of Work after Retirement," Journal of Human Resources, University of Wisconsin Press, vol. 45(3).
    8. David Cutler & Angus Deaton & Adriana Lleras-Muney, 2006. "The Determinants of Mortality," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 97-120, Summer.
    9. Chad Cotti & Richard A. Dunn & Nathan Tefft, 2015. "The Dow is Killing Me: Risky Health Behaviors and the Stock Market," Health Economics, John Wiley & Sons, Ltd., vol. 24(7), pages 803-821, July.
    10. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
    11. Benedicte Apouey & Andrew E. Clark, 2015. "Winning Big but Feeling no Better? The Effect of Lottery Prizes on Physical and Mental Health," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 516-538, May.
    12. Coile, Courtney & Diamond, Peter & Gruber, Jonathan & Jousten, Alain, 2002. "Delays in claiming social security benefits," Journal of Public Economics, Elsevier, vol. 84(3), pages 357-385, June.
    13. Zhuan Pei & Jörn-Steffen Pischke & Hannes Schwandt, 2019. "Poorly Measured Confounders are More Useful on the Left than on the Right," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(2), pages 205-216, April.
    14. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    15. Douglas L. Miller & Marianne E. Page & Ann Huff Stevens & Mateusz Filipski, 2009. "Why Are Recessions Good for Your Health?," American Economic Review, American Economic Association, vol. 99(2), pages 122-127, May.
    16. David Cesarini & Erik Lindqvist & Robert Östling & Björn Wallace, 2016. "Wealth, Health, and Child Development: Evidence from Administrative Data on Swedish Lottery Players," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 687-738.
    17. Michael D. Hurd & Kathleen McGarry, 2002. "The Predictive Validity of Subjective Probabilities of Survival," Economic Journal, Royal Economic Society, vol. 112(482), pages 966-985, October.
    18. Angus S. Deaton & Christina Paxson, 2004. "Mortality, Income, and Income Inequality over Time in Britain and the United States," NBER Chapters, in: Perspectives on the Economics of Aging, pages 247-286, National Bureau of Economic Research, Inc.
    19. Angus S. Deaton & Christina Paxson, 2001. "Mortality, Education, Income, and Inequality among American Cohorts," NBER Chapters, in: Themes in the Economics of Aging, pages 129-170, National Bureau of Economic Research, Inc.
    20. Michaud, Pierre-Carl & van Soest, Arthur, 2008. "Health and wealth of elderly couples: Causality tests using dynamic panel data models," Journal of Health Economics, Elsevier, vol. 27(5), pages 1312-1325, September.
    21. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    22. Stephen E. Snyder & William N. Evans, 2006. "The Effect of Income on Mortality: Evidence from the Social Security Notch," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 482-495, August.
    23. Gardner, Jonathan & Oswald, Andrew J., 2007. "Money and mental wellbeing: A longitudinal study of medium-sized lottery wins," Journal of Health Economics, Elsevier, vol. 26(1), pages 49-60, January.
    24. Jörn-Steffen Pischke & Hannes Schwandt, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," NBER Working Papers 18384, National Bureau of Economic Research, Inc.
    25. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
    26. repec:wly:hlthec:v:25:y:2016:i::p:57-69 is not listed on IDEAS
    27. Jérôme Adda & James Banks & Hans-Martin von Gaudecker, 2009. "The Impact of Income Shocks on Health: Evidence from Cohort Data," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1361-1399, December.
    28. Hilary Hoynes & Douglas L. Miller & Jessamyn Schaller, 2012. "Who Suffers during Recessions?," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 27-48, Summer.
    29. Peter Adams & Michael D. Hurd & Daniel L. McFadden & Angela Merrill & Tiago Ribeiro, 2004. "Healthy, Wealthy, and Wise? Tests for Direct Causal Paths between Health and Socioeconomic Status," NBER Chapters, in: Perspectives on the Economics of Aging, pages 415-526, National Bureau of Economic Research, Inc.
    30. Till Stowasser & Florian Heiss & Daniel McFadden & Joachim Winter, 2011. ""Healthy, Wealthy and Wise?" Revisited: An Analysis of the Causal Pathways from Socioeconomic Status to Health," NBER Chapters, in: Investigations in the Economics of Aging, pages 267-317, National Bureau of Economic Research, Inc.
    31. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
    32. Eleonora Fichera & John Gathergood, 2016. "Do Wealth Shocks Affect Health? New Evidence from the Housing Boom," Health Economics, John Wiley & Sons, Ltd., vol. 25(S2), pages 57-69, November.
    33. McInerney, Melissa & Mellor, Jennifer M. & Nicholas, Lauren Hersch, 2013. "Recession depression: Mental health effects of the 2008 stock market crash," Journal of Health Economics, Elsevier, vol. 32(6), pages 1090-1104.
    34. Mikael Lindahl, 2005. "Estimating the Effect of Income on Health and Mortality Using Lottery Prizes as an Exogenous Source of Variation in Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
    35. James Smith, 2005. "Consequences and Predictors of New Health Events," NBER Chapters, in: Analyses in the Economics of Aging, pages 213-240, National Bureau of Economic Research, Inc.
    36. Jeff Dominitz & Charles F. Manski, 2007. "Expected Equity Returns and Portfolio Choice: Evidence from the Health and Retirement Study," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 369-379, 04-05.
    37. Christopher J. Ruhm, 2000. "Are Recessions Good for Your Health?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(2), pages 617-650.
    38. Daniel Sullivan & Till von Wachter, 2009. "Job Displacement and Mortality: An Analysis Using Administrative Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1265-1306.
    39. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    40. repec:pri:cepsud:91malkiel is not listed on IDEAS
    41. repec:hal:pseose:halshs-01155641 is not listed on IDEAS
    42. Joseph Engelberg & Christopher A. Parsons, 2016. "Worrying about the Stock Market: Evidence from Hospital Admissions," Journal of Finance, American Finance Association, vol. 71(3), pages 1227-1250, June.
    43. Yilmazer, Tansel & Babiarz, Patryk & Liu, Fen, 2015. "The impact of diminished housing wealth on health in the United States: Evidence from the Great Recession," Social Science & Medicine, Elsevier, vol. 130(C), pages 234-241.
    44. repec:hal:pseose:halshs-00566789 is not listed on IDEAS
    45. Jensen, Robert T. & Richter, Kaspar, 2004. "The health implications of social security failure: evidence from the Russian pension crisis," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 209-236, January.
    46. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Owen O'Donnell & Eddy Van Doorslaer & Tom Van Ourti, 2013. "Health and Inequality," Tinbergen Institute Discussion Papers 13-170/V, Tinbergen Institute.
    2. Oscar Erixson, 2017. "Health responses to a wealth shock: evidence from a Swedish tax reform," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(4), pages 1281-1336, October.
    3. John Gathergood & Eleonora Fichera, 2012. "House Prices, Home Equity and Health," Discussion Papers 12/07, University of Nottingham, School of Economics.
    4. Eleonora Fichera & John Gathergood, 2016. "Do Wealth Shocks Affect Health? New Evidence from the Housing Boom," Health Economics, John Wiley & Sons, Ltd., vol. 25(S2), pages 57-69, November.
    5. Chen, Xi & Wang, Tianyu & Busch, Susan H., 2019. "Does money relieve depression? Evidence from social pension expansions in China," Social Science & Medicine, Elsevier, vol. 220(C), pages 411-420.
    6. Beomsoo Kim & Christopher J. Ruhm, 2012. "Inheritances, health and death," Health Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 127-144, February.
    7. Martins, Igor & Cilliers, Jeanne & Fourie, Johan, 2019. "Legacies of Loss: The intergenerational outcomes of slaveholder compensation in the British Cape Colony," Lund Papers in Economic History 197, Lund University, Department of Economic History.
    8. Shi, Xuezhu, 2022. "The health-wealth nexus for the elderly: Evidence from the booming housing market in China," Labour Economics, Elsevier, vol. 78(C).
    9. Cheng, Lingguo & Liu, Hong & Zhang, Ye & Zhao, Zhong, 2018. "The health implications of social pensions: Evidence from China's new rural pension scheme," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 53-77.
    10. Munford, Luke A. & Fichera, Eleonora & Sutton, Matt, 2020. "Is owning your home good for your health? Evidence from exogenous variations in subsidies in England," Economics & Human Biology, Elsevier, vol. 39(C).
    11. Broughel, James & Viscusi, Kip, 2017. "Death by Regulation: How Regulations Can Increase Mortality Risk," Working Papers 06864, George Mason University, Mercatus Center.
    12. Yilmazer, Tansel & Babiarz, Patryk & Liu, Fen, 2015. "The impact of diminished housing wealth on health in the United States: Evidence from the Great Recession," Social Science & Medicine, Elsevier, vol. 130(C), pages 234-241.
    13. Patryk Babiarz & Tansel Yilmazer, 2017. "The impact of adverse health events on consumption: Understanding the mediating effect of income transfers, wealth, and health insurance," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 1743-1758, December.
    14. Martins, Igor & Cilliers, Jeanne & Fourie, Johan, 2023. "Legacies of loss: The health outcomes of slaveholder compensation in the British Cape Colony," Explorations in Economic History, Elsevier, vol. 89(C).
    15. Maite Blázquez Cuesta & Santiago Budría, 2013. "Does income deprivation affect people’s mental well-being?," Working Papers 1312, Banco de España.
    16. Atalay, Kadir & Edwards, Rebecca & Liu, Betty Y.J., 2017. "Effects of house prices on health: New evidence from Australia," Social Science & Medicine, Elsevier, vol. 192(C), pages 36-48.
    17. Hans van Kippersluis & Titus J. Galama, 2013. "Why the Rich drink more but smoke less: The Impact of Wealth on Health Behaviors," Tinbergen Institute Discussion Papers 13-035/V, Tinbergen Institute.
    18. Julien Albertini & Anthony Terriau, 2019. "Wealth and health in South Africa," Working Papers halshs-02073800, HAL.
    19. Frijters, Paul & Johnston, David W. & Shields, Michael A. & Sinha, Kompal, 2015. "A lifecycle perspective of stock market performance and wellbeing," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 237-250.
    20. Benedicte Apouey & Andrew E. Clark, 2015. "Winning Big but Feeling no Better? The Effect of Lottery Prizes on Physical and Mental Health," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 516-538, May.

    More about this item

    Keywords

    stock market; wealth shocks; retiree health;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • I10 - Health, Education, and Welfare - - Health - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp8298. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.