The long-term effects of experienced macroeconomic shocks on wealth

This paper examines the long-term effects of experienced macro-economic shocks – defined as multi-year peak-to-trough GDP declines of at least 10 percent – on the wealth distribution, portfolio allocation, and risk attitudes of older individuals in Europe. We show that individuals who have experienced more economic depression episodes have lower wealth in absolute terms, a lower probability to invest in risky assets, and display higher risk aversion. When analysing early investment decisions, we find that individuals hit by a depression substitute risky investments with investment in housing, and that these early choices shape wealth in the long-term.