Cognitive Ability and Portfolio Composition:

University essay from Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Abstract: In this paper we match data on retirement investments from the Swedish Premium Pension Authority to conscription data from the Swedish military and examine the association between cognitive ability and portfolio investment decisions. Consistent with much laboratory evidence, we find that cognitive ability is associated with greater financial risk-taking. The magnitude of the reported association is weak. We also report some evidence suggesting that people with higher cognitive ability are more likely to make active financial choices. These results are considered in relation to current debates in finance about the causes and consequences of individual heterogeneity in portfolio composition.

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