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

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: Suggested Citation

Weber, Annika and Laudenbach, Christine and Wohlfart, Johannes and Weber, Rüdiger, Beliefs About the Stock Market and Investment Choices: Evidence from a Field Experiment (November 23, 2021). CEBI Working Paper 17/21, Available at SSRN: https://ssrn.com/abstract=3969783 or http://dx.doi.org/10.2139/ssrn.3969783