Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248972 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9427
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We survey retail investors at an online bank to study beliefs about the autocorrelation of aggregate stock returns, and how these beliefs shape investment decisions measured in administrative account data. Individuals’ beliefs exhibit substantial heterogeneity and predict trading responses to market movements. We inform a random half of our respondents that historically the autocorrelation of aggregate returns was close to zero, which persistently changes their beliefs. Among those initially believing in mean reversion, treated respondents buy significantly less equity during the COVID-19 crash four months later. Our results highlight how heterogeneity in subjective models causally drives trade in asset markets.
Subjects: 
expectation formation
information
updating
retail investors
trading
JEL: 
D14
D83
D84
D91
E71
Document Type: 
Working Paper
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