What Matters to Individual Investors? Evidence from the Horse’s Mouth

Choi, James J.; Robertson, Adriana

doi:10.3386/w25019

“…This evidence suggests that local bankruptcies make investors more pessimistic about stock returns by increasing the perceived probability of large losses, potentially because bankruptcies make such a possibility more salient. These results are in line with recent findings showing that perceived disaster risk seems to play an important role in individuals' stock investment decisions (Choi and Robertson, 2020;Fagereng et al, 2017a;Giglio et al, 2020). 27 Do investors extrapolate from local bankruptcies not only to future returns of German stocks but also to future returns of foreign stocks?…”

Section: Subjective Return Expectationssupporting

confidence: 88%

“…However, investors who have experienced more bankruptcies than usual over the previous fours weeks report that their expectations about stock returns have worsened over that time. They exhibit lower mean expected returns, which primarily reflect a higher perceived risk of large drops in stock prices, in line with recent evidence on the role of perceived disaster risk in shaping investment decisions (Choi and Robertson, 2020;Fagereng et al, 2017a;Giglio et al, 2020). There is no e↵ect on subjective expectations about the returns of foreign stocks or bonds.…”

Section: Does Attention To Bankruptcies A↵ect Trading Behavior Througsupporting

confidence: 84%

The Trading Response of Individual Investors to Local Bankruptcies

Laudenbach

¹

,

Loos²,

Pirschel

³

et al. 2020

SSRN Journal

2

0

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We use data from a German online brokerage and a survey to show that retail investors sharply reduce risk-taking in response to nearby firm bankruptcies, which are not predictive of returns. The e↵ects on trading are spatially highly concentrated, immediate and not persistent. They seem to operate through more pessimistic expected returns and increased risk aversion and do not reflect wealth e↵ects or changes in background risks. Investors learn about bankruptcies through immediate coverage in local newspapers. Our findings suggest that non-informative local experiences that make downside risks of stock investment more salient contribute to idiosyncratic short-term fluctuations in trading.

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“…For example, the Vanguard Research Initiative has provided substantial recent advances in linking survey evidence to retirement choices (Ameriks et al, 2016(Ameriks et al, , 2015a(Ameriks et al, ,b, 2017(Ameriks et al, , 2018. 4 As part of this agenda, Ameriks et al 2016find a low sensitivity of retail investors' equity investment to stock market expectations, a fact also documented by Vissing-Jorgensen (2003), Dominitz and Manski (2007), Kézdi and Willis (2011), Amromin and Sharpe (2013), Arrondel, Calvo Pardo and Tas (2014), Merkle and Weber (2014), Choi and Robertson (2018) and Drerup, Enke and Von Gaudecker (2017). 5 Our work builds on this literature by exploring a quantitative survey of a large panel of wealthy investors, which is matched to administrative data on these investors' portfolios and trading behaviors.…”

mentioning

confidence: 99%

Five Facts about Beliefs and Portfolios

Giglio¹,

Maggiori²,

Stroebel³

et al. 2019

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We administer a newly-designed survey to a large panel of retail investors who have substantial wealth invested in financial markets. The survey elicits beliefs that are crucial for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition and their trading activity. We establish five facts in this data: (1) Beliefs are reflected in portfolio allocations. The sensitivity of portfolios to beliefs is small on average, but varies significantly with investor wealth, attention, trading frequency, and confidence. (2) It is hard to predict when investors trade, but conditional on trading, belief changes affect both the direction and the magnitude of trades. (3) Beliefs are mostly characterized by large and persistent individual heterogeneity; demographic characteristics explain only a small part of why some individuals are optimistic and some are pessimistic. (4) Investors who expect higher cash flow growth also expect higher returns and lower long-term price-dividend ratios. (5) Expected returns and the subjective probability of rare disasters are negatively related, both within and across investors. These five facts challenge the rational expectation framework for macrofinance, and provide important guidance for the design of behavioral models.

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“…For example, the Vanguard Research Initiative has provided substantial recent advances in linking survey evidence to retirement choices (Ameriks et al, 2016(Ameriks et al, , 2015a(Ameriks et al, ,b, 2017(Ameriks et al, , 2018. 4 As part of this agenda, Ameriks et al (2016) find a low sensitivity of retail investors' equity investment to stock market expectations, a fact also documented by Vissing-Jorgensen (2003), Dominitz and Manski (2007), Kézdi and Willis (2011), Amromin and Sharpe (2013), Arrondel, Calvo Pardo and Tas (2014), Merkle and Weber (2014), Choi and Robertson (2018) and Drerup, Enke and Von Gaudecker (2017). 5 Our work builds on this literature by exploring a quantitative survey of a large panel of wealthy investors, which is matched to administrative data on these investors' portfolios and trading behaviors.…”

mentioning

confidence: 99%

Five Facts About Beliefs and Portfolios

Giglio

¹

,

Maggiori

²

,

Stroebel

³

et al. 2019

View full text Add to dashboard Cite

We administer a newly-designed survey to a large panel of retail investors who have substantial wealth invested in financial markets. The survey elicits beliefs that are crucial for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition and their trading activity. We establish five facts in this data: (1) Beliefs are reflected in portfolio allocations. The sensitivity of portfolios to beliefs is small on average, but varies significantly with investor wealth, attention, trading frequency, and confidence. (2) It is hard to predict when investors trade, but conditional on trading, belief changes affect both the direction and the magnitude of trades.(3) Beliefs are mostly characterized by large and persistent individual heterogeneity; demographic characteristics explain only a small part of why some individuals are optimistic and some are pessimistic. (4) Investors who expect higher cash flow growth also expect higher returns and lower long-term price-dividend ratios. (5) Expected returns and the subjective probability of rare disasters are negatively related, both within and across investors. These five facts challenge the rational expectation framework for macro-finance, and provide important guidance for the design of behavioral models. AbstractWe administer a newly-designed survey to a large panel of retail investors who have substantial wealth invested in financial markets. The survey elicits beliefs that are crucial for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition and their trading activity. We establish five facts in this data: (1) Beliefs are reflected in portfolio allocations. The sensitivity of portfolios to beliefs is small on average, but varies significantly with investor wealth, attention, trading frequency, and confidence. (2) It is hard to predict when investors trade, but conditional on trading, belief changes affect both the direction and the magnitude of trades. (3) Beliefs are mostly characterized by large and persistent individual heterogeneity; demographic characteristics explain only a small part of why some individuals are optimistic and some are pessimistic. (4) Investors who expect higher cash flow growth also expect higher returns and lower long-term price-dividend ratios. (5) Expected returns and the subjective probability of rare disasters are negatively related, both within and across investors. These five facts challenge the rational expectation framework for macro-finance, and provide important guidance for the design of behavioral models. JEL Codes: G11, G12, R30.

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What Matters to Individual Investors? Evidence from the Horse’s Mouth

Cited by 35 publications

References 95 publications

The Trading Response of Individual Investors to Local Bankruptcies

The Trading Response of Individual Investors to Local Bankruptcies

Five Facts about Beliefs and Portfolios

Five Facts About Beliefs and Portfolios

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