Working Paper: CEPR ID: DP5735
Authors: Dimitris Christelis; Tullio Jappelli; Mario Padula
Abstract: We study the relation between cognitive ability and the decision to invest in stocks using the recent Survey of Health, Ageing and Retirement in Europe (SHARE). The survey 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 investment accounts. We also find that stockholding increases with social interactions, intention to leave a bequest, and is negatively associated with health status.
Keywords: cognitive abilities; portfolio choice; stockholding
JEL Codes: D8; E2; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cognitive abilities (D91) | Stock market participation (G19) |
| Higher numeracy (C12) | Direct stock ownership (G32) |
| Fluency and recall skills (G53) | Stock ownership probabilities (G19) |
| Cognitive abilities (D91) | Perceived costs of investing (G11) |
| Health status (I14) | Stock ownership (G32) |
| Social activities (Z00) | Effect of cognitive skills on stock market participation (G41) |