Household Portfolio Choices, Health Status and Health Care Systems

A Cross-Country Analysis Based on SHARE

Published in: Journal of Banking & Finance, v. 36, no. 5, May 2012, p. 1320-1335

Posted on RAND.org on January 01, 2011

by Vincenzo Atella, Marianna Brunetti, Nicole Maestas

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Health risk is increasingly viewed as an important form of background risk that affects household portfolio decisions. However, its role might be mediated by the presence of a protective full-coverage national health service that could reduce households' probability of incurring current and future out-of-pocket medical expenditures. We use SHARE data to study the influence of current health status and future health risk on the decision to hold risky assets, across ten European countries with different health systems, each offering a different degree of protection against out-of-pocket medical expenditures. We find robust empirical evidence that perceived health status matters more than objective health status and, consistent with the theory of background risk, health risk affects portfolio choices only in countries with less protective health care systems. Furthermore, portfolio decisions consistent with background risk models are observed only with respect to middle-aged and highly-educated investors.

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