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Retail investor expectations and trading preferences

Author

Listed:
  • Sarantis Tsiaplias

    (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne)

  • Qi Zeng

    (Department of Finance, the University of Melbourne)

  • Guay Lim

    (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne)

Abstract

Using a novel quarterly survey of 23 thousand Australian retail equity investors spanning eight years, we study the relationship between investor beliefs and their trading preferences. We provide evidence that, consistent with Mean-Variance preferences, both lower returns and higher volatility increase the marginal propensity to sell. Furthermore, we find that while demographic characteristics and investment experiences are predictive of the holding preferences of retail investors, they are uninformative about their trading directional preferences (i.e. whether to buy or sell). Our findings suggest that a representative-agent portfolio model with Mean-Variance preferences is sufficient to explain the trading directional preferences of retail investors, but not their holding patterns.

Suggested Citation

  • Sarantis Tsiaplias & Qi Zeng & Guay Lim, 2021. "Retail investor expectations and trading preferences," Melbourne Institute Working Paper Series wp2021n27, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2021n27
    as

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    File URL: https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0006/3968376/wp2021n27.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    investor expectiations; shareholder surveys; trading preferences; Mean-Variance utility.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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