How Investor Perceptions Drive Actual Trading and Risk-Taking Behavior

Journal of Behavioral Finance, 16 (1), pp. 94-103. 2015

24 Pages Posted: 6 Dec 2011 Last revised: 25 Mar 2015

See all articles by Arvid O. I. Hoffmann

Arvid O. I. Hoffmann

University of Adelaide - Business School

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Joost M. E. Pennings

Maastricht University; Wageningen UR; University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Date Written: March 13, 2013

Abstract

Recent work in behavioral finance showed how investors’ perceptions (i.e., return expectations, risk tolerance, and risk perception) affect hypothetical trading and risk-taking behavior. However, are such perceptions also capable of explaining actual trading and risk-taking behavior? To answer this question, we combine monthly survey data with matching brokerage records to construct a panel data set allowing us to simultaneously examine investor perceptions and behavior. We find that investor perceptions and changes therein are important drivers of actual trading and risk-taking behavior: Investors with higher levels of and upward revisions of return expectations are more likely to trade, have higher turnover, trade larger amounts per transaction, and are more likely to use derivatives. Investors with higher levels of and upward revisions in risk tolerance are more likely to trade, have higher buy-sell ratios, use limit orders more frequently, and hold riskier portfolios. Investors with higher levels of risk perception are more likely to trade, have higher turnover, have lower buy-sell ratios, and hold riskier portfolios.

Keywords: individual investors, return expectations, risk perception, risk tolerance, stock trading, risk-taking behavior

JEL Classification: D14, D81, G02, G11

Suggested Citation

Hoffmann, Arvid O. I. and Post, Thomas and Pennings, Joost M. E., How Investor Perceptions Drive Actual Trading and Risk-Taking Behavior (March 13, 2013). Journal of Behavioral Finance, 16 (1), pp. 94-103. 2015, Available at SSRN: https://ssrn.com/abstract=1968839 or http://dx.doi.org/10.2139/ssrn.1968839

Arvid O. I. Hoffmann (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

Joost M. E. Pennings

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

Wageningen UR ( email )

Hollandseweg 1
Wageningen, 6706KN
Netherlands

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

1301 W. Gregory Drive
326 Mumford Hall MC-710
Urbana, IL 61801
United States
217-244-1284 (Phone)
217-333-5538 (Fax)

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

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