Effects of age on risk aversion and portfolio choice
Abstract
Recent contributions to the theory of household portfolio selection argue that there will exist age clienteles for risky securities in financial markets. Illiquidity of human capital for young households and diminished human capital for old households will lead these investors to assume less risk than will households in middle age. Alternatively, diminished flexibility in employment of human capital with age causes households to assume less risk as they age: the young will assume more risk than will those in middle age, those in middle age will assume more risk than will the old. Considering two measures of risk taking, the fraction of total assets invested in risky assets and the betas of portfolios held with investment firms, we find evidence to support increasing risk aversion as households advance from middle to old age over a cross section of investors. Results as to the degree of risk aversion of the young relative to older households are inconclusive.
Degree
Ph.D.
Advisors
Kadiyala, Purdue University.
Subject Area
Economics|Finance
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