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The effect of age on portfolio choices: evidence from an Italian pension fund*

Published online by Cambridge University Press:  17 January 2014

Bank of Italy – Economic Research and International Relations Area (
Bank of Italy – Economic Research and International Relations Area (
Bank of Italy – Economic Research and International Relations Area (


According to optimal portfolio theories, investors should reduce their exposure to stock market risk as they grow old. Indeed, older workers, with only a few years left before retirement, are particularly vulnerable to unexpected falls in stock prices. Despite the theoretical and – as shown by the recent financial crisis – policy relevance of the issue, empirical evidence on this topic has been scant and inconclusive. The aim of the present paper is to assess the effect of age on portfolio choices, using a new panel dataset from an Italian defined-contribution pension plan. We find that on average holdings of risky assets do indeed significantly decrease with age. However, the effect is non-linear, being much stronger in the last part of one's career. Moreover, we also document that inertial behaviour is quite widespread, and can be very costly. Results are confirmed when we control for individual fixed effects and cohort effects.

Copyright © Cambridge University Press 2014 

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The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Bank of Italy. We thank Giorgio Gobbi, Sandro Momigliano, Valentina Nigro, Domenico Depalo, two anonymous referees, and seminar participants at the Bank of Italy, the 10th Anniversary Conference of CERP (Turin, September 2009), the Netspar Pension Workshop (Amsterdam, February 2010) and LUISS (Rome, April 2010) for useful comments.


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