Cognitive Ability and the Stock Reallocations of Retirees During the Great Recession

Christopher Browning, Michael Finke

Research output: Contribution to journalArticlepeer-review


Retirees are increasingly responsible for managing their own retirement savings. The ability to manage these assets efficiently can have an important impact on retirement wellbeing. Lower levels of cognitive ability in old age can reduce an investor’s ability to control emotional responses to a loss. Greater sensitivity to loss may result in an increased preference for safety following a market decline, resulting in a reallocation away from stocks that is associated with long-term underperformance. We investigate whether cognitive ability is related to a shift in portfolio allocation among retirees during the 2007-2008 financial crisis. Using panel data from the Health and Retirement Study to compare return-adjusted asset allocations in 2008 to portfolio allocations in 2006, we find that cognitive ability is negatively related to allocations away from stock. Compared to those with the lowest levels of cognitive ability, respondents with higher cognitive ability are 40% less likely t
Original languageEnglish
JournalJournal of Consumer Affairs/Wiley
StatePublished - Jul 2015


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