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

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. The treatment significantly shifts
respondents’ equity purchases during the Covid-19 crash months later in the direction implied by
the belief changes caused by the intervention. Our results provide causal evidence on the drivers
of disagreement and trade in asset markets.

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

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