Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations

Abstract

Do wealth shocks affect the health of elderly in developed countries? I exploit the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stock-holding retirees. Using data from the 1998–2011 Health and Retirement Study, I construct wealth shocks as the interaction of stock holdings with stock market changes. These wealth shocks predict wealth changes and strongly affect health outcomes. A 10 percent wealth loss leads to an impairment of 2–3 percent of a standard deviation in physical health, mental health, and survival rates. (JEL D14, G11, G14, I12, J14)