Beliefs About the Stock Market and Investment Choices: Evidence from a Field Experiment

98 Pages Posted: 26 Mar 2021 Last revised: 3 Oct 2022

See all articles by Christine Laudenbach

Christine Laudenbach

SAFE and Goethe University

Annika Weber

Goethe University Frankfurt; Leibniz Institute for Financial Research SAFE

Rüdiger Weber

WU Vienna; Vienna Graduate School of Finance (VGSF)

Johannes Wohlfart

University of Copenhagen

Multiple version iconThere are 2 versions of this paper

Date Written: November 12, 2021

Abstract

We survey retail investors at an online bank to study how beliefs about the autocorrelation of aggregate stock returns shape investment decisions measured in administrative account data. Individuals' beliefs exhibit substantial heterogeneity and predict trading responses to market movements. We inform half of our respondents that, historically, the autocorrelation of returns was close to zero, which persistently changes their beliefs. Among those who initially believe in mean reversion, treated respondents buy significantly less equity during the Covid-19 crash months later. Our results provide causal evidence on the drivers of disagreement and trade in asset markets.

Keywords: Expectation Formation, Retail Investors, Trading, Field Experiment.

JEL Classification: D83, D84, D91, E71, G11, G12, G41, G50.

Suggested Citation

Laudenbach, Christine and Weber, Annika and Weber, Rüdiger and Wohlfart, Johannes, Beliefs About the Stock Market and Investment Choices: Evidence from a Field Experiment (November 12, 2021). Available at SSRN: https://ssrn.com/abstract=3812346 or http://dx.doi.org/10.2139/ssrn.3812346

Christine Laudenbach

SAFE and Goethe University ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

Annika Weber

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Rüdiger Weber

WU Vienna ( email )

Welthandelsplatz 1 1
Wien, 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Johannes Wohlfart (Contact Author)

University of Copenhagen ( email )

Øster Farimagsgade 5
Building 35
Copenhagen, DK-1353
Denmark

HOME PAGE: http://https://sites.google.com/site/johanneswohlfartecon/home

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