This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2023
  4. Program
  5. Asset Pricing: Household Finance
« Back to Results

Asset Pricing: Household Finance

Paper Session

Sunday, Jan. 8, 2023 1:00 PM - 3:00 PM (CST)

Sheraton New Orleans, Maurepas
Hosted By: American Finance Association
  • Chair: Abhiroop Mukherjee, Hong Kong University of Science and Technology

Stakes and Mistakes

Steffen Andersen
,
Copenhagen Business School
Abhiroop Mukherjee
,
Hong Kong University of Science and Technology
Kasper Meisner Nielsen
,
Copenhagen Business School

Abstract

How large is the causal impact of stakes on behavioral investment mistakes? We answer this question by examining changes in individual investment behavior following inheritances arising from sudden parental deaths. Our main empirical strategy compares such changes across investors with different inheritances arising from differences in the number of siblings alive at the time of the death. We find that those who receive large inheritances exhibit fewer investment mistakes, but the sensitivity of mistakes to stakes is very small in terms of economic magnitude, even after five years. Tests using untimely deaths of adult siblings before parental bereavement confirm these findings. Mistakes do not disappear when stakes are raised, even when the increase is substantial.

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

Christine Laudenbach
,
SAFE and Goethe University
Annika Weber
,
Goethe University
Rüdiger Weber
,
WU Vienna
Johannes Wohlfart
,
University of Copenhagen

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.

The Dynamics of Stock Market Participation

Akash Raja
,
London School of Economics
Sigurd Mølster Galaasen
,
Norges Bank

Abstract

We document novel facts on the exit and reentry margins of stock market participation by retail investors. Using detailed administrative data containing wealth information for every Norwegian resident from 1993 to 2018, we find that many households leave the stock market within just 2 years after entry. Such behavior is more prominent for low income, wealth, and education groups. We also show that the longer households participate for, the less likely they are to exit. In terms of the reentry margin, over 35% of exiters subsequently return to the stock market, often just a year later. A workhorse portfolio choice model requires sizable per-period participation costs to produce such patterns. We propose a theory of experience effects, whereby agents form beliefs over future stock returns based on their realized returns. This model can explain the short-term dynamics in stock market participation without requiring high costs.

Discussant(s)
James Choi
,
Yale University
Andreas Fuster
,
EPFL, Swiss Finance Institute, and CEPR
Lu Liu
,
University of Pennsylvania
JEL Classifications
  • G1 - Asset Markets and Pricing