February 6, 2013

Is the Dow Hazardous to Your Health?

Getting ‘killed in the market’ takes on new meaning

(Photo: AP) (Photo: AP)

An aging advisor population (52 on average) should pay particular attention to the following.

Are you getting killed by the stock market? It’s not a figurative question, as new research indicates that poorly performing markets result in a corresponding increase in health risks.

Economists and public-health researchers have teamed together to produce a new report, titled “The Dow is Killing Me: Risky Health Behaviors and the Stock Market,” which finds a correlation between poor health and poor returns.

It’s penned by Chad Cotti of the University of Wisconsin, Richard Dunn of Texas A&M University and Nathan Tefft of the University of Washington’s Department of Health Services.

“The capital asset pricing model predicts that the stock prices capture all publicly available information about the discounted expected future cash flows of firms,” the authors begin. Thus, a large decline in stock market indices may signal impending widespread economic distress.”

Their research therefore demonstrates that these signals “reach a large share of the general population and influence attitudes both about the economy and the level of life satisfaction.”

In a preview of their results, they find that cigarette consumption and the number of days that a respondent reports experiencing poor mental health increases during a large monthly decline in the Dow Jones Industrial Average, independent of other measures of macroeconomic conditions.

“When restricting attention to the stock market crashes of 1987 and 2008-2009, respondents additionally reported more binge drinking,” they write. “This broader increase in the riskiness of health behaviors during acute, protracted stock market declines is then confirmed in the data by a sharp increase in drunken driving fatalities during the 2008-2009 market crash.”

 The alcohol and cigarette consumption behavior patterns are also confirmed by considering household purchase data. Collectively, they note, these estimates are consistent with the idea that the general state of the stock market impacts individual’s behavioral choices in “meaningful ways.”

“The pattern of results presented in this paper strongly suggests that the way in which individuals behave with respect to their health during economic downturns depends critically on how which aspects of the downturn are being considered,” the authors conclude.

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