A Walk Down Memory Lane: How Memories Influence Stock Investment and Information Processing

35 Pages Posted: 9 Apr 2024 Last revised: 11 Apr 2024

See all articles by Giovanni Burro

Giovanni Burro

Heidelberg University - Alfred Weber Institute for Economics

Alessandro Castagnetti

University of Verona

Alessandra Cillo

LIUC Cattaneo University

Paolo Crespi

affiliation not provided to SSRN

Abstract

Investing in the stock market is a pivotal decision in household finance. Stock investment is substantially more profitable than investment in other asset classes. We experimentally test stock market participation and how financial memories influence stock investment. Participants invest in a stock and they are compensated based on the actual price realization of that stock. We conduct two experiments. In the first experiment, we elicit participants’ memories of the stock market before or after the investment task. We find that eliciting memories before this task polarizes the level of the amount invested in the stock: positive memories increase the level invested compared to recalling non-positive ones. Moreover, cueing non-positive memories decreases investment with respect to not cueing them. In the second experiment, we elicit memories before the investment for all participants. After eliciting memories and before the investment task we provide, some participants, with positive and truthful financial information about the stock they are about to invest in. While information provision increases investment, it only does so for those that do not recall personal memories, as opposed to personal ones. We rationalize our findings in light of a memory-based model that builds upon two main elements of memory recall: similarity and interference.

Keywords: Memory, Beliefs, Financial Decisions, Investment

JEL Classification: D14, D81, D91

Suggested Citation

Burro, Giovanni and Castagnetti, Alessandro and Cillo, Alessandra and Crespi, Paolo, A Walk Down Memory Lane: How Memories Influence Stock Investment and Information Processing. Available at SSRN: https://ssrn.com/abstract=4788491 or http://dx.doi.org/10.2139/ssrn.4788491

Giovanni Burro (Contact Author)

Heidelberg University - Alfred Weber Institute for Economics

Bergheimer Str. 58
Heidelberg, 69115
Germany

Alessandro Castagnetti

University of Verona ( email )

Via dell'Artigliere, 8
Verona, 37129
Italy

Alessandra Cillo

LIUC Cattaneo University ( email )

Castellanza
Italy

Paolo Crespi

affiliation not provided to SSRN ( email )

No Address Available

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