Cognitive abilities and portfolio choice

Christelis, D. , Jappelli, T. and Padula, M. (2010) Cognitive abilities and portfolio choice. European Economic Review, 54(1), pp. 18-38. (doi:10.1016/j.euroecorev.2009.04.001)

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Abstract

We study the relation between cognitive abilities and stockholding using the recent Survey of Health, Ageing and Retirement in Europe (SHARE), which has detailed data on wealth and portfolio composition of individuals aged 50+ in 11 European countries and three indicators of cognitive abilities: mathematical, verbal fluency, and recall skills. We find that the propensity to invest in stocks is strongly associated with cognitive abilities, for both direct stock market participation and indirect participation through mutual funds and retirement accounts. Since the decision to invest in less information-intensive assets (such as bonds) is less strongly related to cognitive abilities, we conclude that the association between cognitive abilities and stockholding is driven by information constraints, rather than by features of preferences or psychological traits.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Christelis, Dr Dimitris
Authors: Christelis, D., Jappelli, T., and Padula, M.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Economic Review
Publisher:Elsevier
ISSN:0014-2921
Published Online:13 May 2009

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