Subjective life horizon and portfolio choice

•Risk tolerance is positively related to subjective expectations of remaining life span.•Also the share of financial assets allocated to stocks increases with subjective life horizon.•The impact of horizon on the risky asset share is stronger for households without bequest motives. Using data from a...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2015-08, Vol.116, p.94-106
Main Authors: Spaenjers, Christophe, Spira, Sven Michael
Format: Article
Language:English
Subjects:
Bequests
Empirical research
Equity
Households
Investment horizon
Investors
Life expectancy
Portfolio choice
Portfolio investments
Portfolio performance
Portfolio selection
Securities markets
Socioeconomic factors
Studies
Subjective expectations
U.S.A
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Summary:•Risk tolerance is positively related to subjective expectations of remaining life span.•Also the share of financial assets allocated to stocks increases with subjective life horizon.•The impact of horizon on the risky asset share is stronger for households without bequest motives. Using data from a U.S. household survey, we examine the empirical relation between subjective life horizon (i.e., the self-reported expectation of remaining life span) and portfolio choice. We find that equity portfolio shares are higher for investors with longer horizons, controlling for gender-specific age effects, socio-economic characteristics, health, and optimism. Our result is robust to accounting for the endogeneity of equity market participation or instrumenting subjective life horizon with parental survival. Finally, we show that the effect of a shortening horizon on portfolio allocation is stronger for households without bequest motives.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2015.04.006