How Return and Risk Experiences Shape Investor Beliefs and Preferences

Hoffmann, Arvid O. I.; Post, Thomas

doi:10.2139/ssrn.1970284

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How Return and Risk Experiences Shape Investor Beliefs and Preferences

Accounting and Finance, Forthcoming

44 Pages Posted: 10 Dec 2011 Last revised: 17 Aug 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

Date Written: August 17, 2015

Abstract

Combining brokerage records and matching monthly survey measurements of a sample of individual investors from the Netherlands for the period April 2008 through March 2009, we examine how individual investors update their beliefs (return expectations and risk perceptions) and preferences (risk tolerance) as a result of their personal return and risk experiences. Past returns positively impact return expectations and risk tolerance, and negatively impact risk perceptions. Realized risk, however, has no effect. That is, even in a highly volatile stock-market period in which risk appears very salient, investors do not take it into account when updating their beliefs and preferences.

Keywords: Individual Investors, Return Experiences, Risk Experiences, Investor Beliefs, Investor Preferences

JEL Classification: D14, D81, D83, D84, G02, G11

Suggested Citation: Suggested Citation

Hoffmann, Arvid O. I. and Post, Thomas, How Return and Risk Experiences Shape Investor Beliefs and Preferences (August 17, 2015). Accounting and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1970284 or http://dx.doi.org/10.2139/ssrn.1970284