How Return and Risk Experiences Shape Investor Beliefs and Preferences

30 Pages Posted: 6 Sep 2017

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

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. We find that investors' past returns positively impact return expectations and risk tolerance, and negatively impact risk perceptions. Realised 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: Behavioural Finance, Individual Investors, Return Experiences, Risk Experiences, Investor Beliefs, Investor Preferences

Suggested Citation

Hoffmann, Arvid O. I. and Post, Thomas, How Return and Risk Experiences Shape Investor Beliefs and Preferences (September 2017). Accounting & Finance, Vol. 57, Issue 3, pp. 759-788, 2017. Available at SSRN: https://ssrn.com/abstract=3032132 or http://dx.doi.org/10.1111/acfi.12169

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

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