Reaching for Yield: Evidence from Households

59 Pages Posted: 5 Dec 2022

See all articles by Francisco Gomes

Francisco Gomes

London Business School

Cameron Peng

London School of Economics & Political Science (LSE) - Department of Finance

Oksana Smirnova

London Business School

Ning Zhu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Tsinghua University - PBC School of Finance

Date Written: November 21, 2022

Abstract

The existing literature has documented “reaching for yield”—the phenomenon of investing more in risky assets when interest rates are lower—among institutional investors. Using detailed transaction data from a large brokerage firm, we provide direct field evidence that reach for yield is also present in the trading behavior of individual investors. We further document significant heterogeneity in these responses as predicted by different theories. Consistent with models of portfolio choice with labor income, reaching for yield is more pronounced among younger and less wealthy individuals. Consistent with prospect theory, reaching for yield is more pronounced when investors are trading at a loss. Finally, we discuss the phenomenon of “reverse reaching for yield” and document such behavior among certain investor subgroups.

Keywords: Household Finance, Retail Investors, Reaching for Yield

JEL Classification: G11, G50

Suggested Citation

Gomes, Francisco and Peng, Cameron and Smirnova, Oksana and Zhu, Ning, Reaching for Yield: Evidence from Households (November 21, 2022). Available at SSRN: https://ssrn.com/abstract=4283008 or http://dx.doi.org/10.2139/ssrn.4283008

Francisco Gomes (Contact Author)

London Business School ( email )

Finance Department
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/view/francisco-gomes/home

Cameron Peng

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

Oksana Smirnova

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Ning Zhu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
301
Abstract Views
1,212
Rank
190,145
PlumX Metrics