Abstract
This paper analyzes the effect equity values and age have on the risk aversion of participants in U.S. defined contribution plans using a unique dataset with daily responses to a risk tolerance questionnaire. We find that older investors are more risk averse compared to younger cohorts when controlling for the level of the S&P 500 Index, account balance, income, savings percentage, equity percentage and allocation fund percentage. We also find that risk preferences are influenced by the level of the S&P 500, but only in advanced age. This finding is consistent with decreasing absolute risk aversion when wealth is proxied by the S&P 500 Index.
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