Portfolio choice and mental health

Abstract

Close to 30% of the US population experiences at least one mental or substance abuse disorder each year. Given the prevalence of mental health issues, this paper analyzes the role of mental health and cognitive functioning in household portfolio choice decisions. Generally, we find that households affected by mental health issues decrease investments in risky instruments. Various mental health issues can reduce the probability of holding risky assets by up to 19%. Moreover, single women diagnosed with psychological disorders increase investments in safe assets. We also find that cognitive functioning issues are associated with an increase in financial assets devoted to retirement accounts. © 2012 The Authors 2012. Published by Oxford University Press on behalf of the European Finance Association. All right reserved. For Permissions, please email: journals.permissions@oup.com.