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Individual investor perceptions and behavior during the financial crisis

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Author Info

  • Hoffmann, Arvid O.I.
  • Post, Thomas
  • Pennings, Joost M.E.

Abstract

Combining monthly survey data with matching trading records, we examine how individual investor perceptions change and drive trading and risk-taking behavior during the 2008–2009 financial crisis. We find that investor perceptions fluctuate significantly during the crisis, with risk tolerance and risk perceptions being less volatile than return expectations. During the worst months of the crisis, investors’ return expectations and risk tolerance decrease, while their risk perceptions increase. Towards the end of the crisis, investor perceptions recover. We document substantial swings in trading and risk-taking behavior that are driven by changes in investor perceptions. Overall, individual investors continue to trade actively and do not de-risk their investment portfolios during the crisis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 1 ()
Pages: 60-74

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:1:p:60-74

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Financial crisis; Individual investors; Investor perceptions; Trading behavior; Risk-taking behavior;

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References

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Citations

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Cited by:
  1. Baltzer, Markus & Stolper, Oscar & Walter, Andreas, 2013. "Is local bias a cross-border phenomenon? Evidence from individual investors' international asset allocation," Discussion Papers 18/2013, Deutsche Bundesbank, Research Centre.
  2. Yew-Kwang NG, 2013. "Why Is Finance Important? Some Thoughts on Post-Crisis Economics," Economic Growth centre Working Paper Series 1305, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
  3. Necker, Sarah & Ziegelmeyer, Michael, 2014. "Household Risk Taking after the Financial Crisis," MEA discussion paper series 14279, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  4. Ralf Bergheim & Jürgen Ernstberger & Michael W.M. Roos, 2014. "How Do Fair Value Measurements of Financial Instruments Affect Investments in Banks?," Ruhr Economic Papers 0487, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Orhan Erdem & Evren Arik & Serkan Yüksel, 2013. "Trading Puzzle, Puzzling Trade," Working Paper 05, Research and Business Development Department, Borsa Istanbul.
  6. Kempf, Alexander & Merkle, Christoph & Niessen-Ruenzi, Alexandra, 2012. "Low risk and high return: Affective attitudes and stock market expectations," CFR Working Papers 09-10 [rev.], University of Cologne, Centre for Financial Research (CFR).
  7. Chen, Haojun & Maher, Daniela, 2013. "On the predictive role of large futures trades for S&P500 index returns: An analysis of COT data as an informative trading signal," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 177-201.

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