Beliefs About the Stock Market and Investment Choices: Evidence from a Field Experiment
CEBI Working Paper 17/21
99 Pages Posted: 1 Feb 2022 Last revised: 7 Oct 2022
There are 2 versions of this paper
Beliefs About the Stock Market and Investment Choices: Evidence from a Field Experiment
Date Written: November 23, 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: Suggested Citation