Subjective Return Expectations, Information and Stock Market Participation: Evidence from France

Abstract

Despite of its importance for the economy, stock ownership by households is poorly understood. Recent research has uncovered that expectations of stock market returns by individuals strongly correlate with stock ownership. This paper reports new …ndings from a survey which contains novel data on stock-market return expectations, individual information sets and stock ownership, for a representative sample by age and wealth ('Mode de vie des Français', TNS 2007). Individual information sets measure in probabilistic terms the beliefs that individuals hold about equity returns over the …ve years prior to the time of the survey (March 2007). We …nd that (i) expected returns and information sets are very heterogeneous, hump-shaped in age, higher for males and increasing in wealth; (ii) stock ownership increases with the subjective conditional expectation of a positive return; and (iii) that information is costly acquired, sourced from social interactions, professionals, specialised media access, or own past experience, and is consistent with rational inattention amongst optimists and income constrained respondents.

Measuring expectations from household surveys: new results on subjective probabilities of future house prices

“…17 Individuals having more optimistic beliefs about returns are more likely to hold stocks. This effect was first found in Dominitz and Manski (2007) and has been confirmed by other authors in various contexts (Hurd et al 2011;Hudomiet et al 2011;Arrondel et al 2011). Importantly, those heterogeneous beliefs seem to present systematic biases.…”

“…Most studies have been eliciting cdfs although lately an increasing number of questions are being framed as pdfs (for examples of pdf questioning see Arrondel et al 2011, the New York Federal Reserve inflation question in Bruine de Bruin et al 2011b;). Morgan and Henrion (1990) cite experimental evidence reporting that individuals find it easier to deal with pdfs that allow an easier visualization of certain properties of the distribution like location and symmetry.…”

Stockholding in France: the role of financial literacy and information

“…Respondent's expectations on stock market returns are measured with a dummy variable indicating whether the respondent expects a positive average return of the stock market in the next 2 years (computed from questions about the expected distribution of returns over seven brackets of potential outcomes, see Arrondel et al, 2012). We also use the variance in expected returns which provides a proxy for respondent's risk expectations.…”

Return expectations and risk aversion heterogeneity in household portfolios

“…Data on expectations, risk attitudes and illiquid assets are often used as predictors in reduced-form models of financial market participation (e.g., Amromin and Sharpe, 2014;Arrondel, Calvo-Pardo and Tas, 2012;Dohmen et al, 2011;Hurd, van Rooij and Winter, 2011), but to the best of our knowledge they have not been linked to a structural model of household portfolio choice in the past. In this paper, we elicit households' expectations of…”

“…Recent research has focused on the likely presence of various expectation types (Dominitz and Manski, 2011), on how expectations quickly react to sudden downturns in the market (Hoffmann, Post and Pennings, 2013;Hudomiet, Kedzi and Willis, 2011), on their relationship with past performance in financial markets (Hurd, van Rooij and Winter, 2011) and on the quality of the information regarding past performance (Arrondel, Calvo-Pardo and Tas, 2012). Overall, expectations have been found to only moderately correlate with financial market indexes, and to be strongly negatively correlated with model-based expected returns (e.g., Greenwood and Shleifer, 2014).…”