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Five Facts about Beliefs and Portfolios

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Listed:
  • Stefano Giglio
  • Matteo Maggiori
  • Johannes Stroebel
  • Stephen Utkus

Abstract

We study a newly-designed survey administered to a large panel of wealthy retail investors. The survey elicits beliefs that are important for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition, their trading activity, and their log-in behavior. We establish five facts in this data: (1) Beliefs are reflected in portfolio allocations. The sensitivity of portfolios to beliefs is small on average, but varies significantly with investor wealth, attention, trading frequency, and confidence. (2) Belief changes do not predict when investors trade, but conditional on trading, they affect both the direction and the magnitude of trades. (3) Beliefs are mostly characterized by large and persistent individual heterogeneity. Demographic characteristics explain only a small part of why some individuals are optimistic and some are pessimistic. (4) Expected cash flow growth and expected returns are positively related, both within and across investors. (5) Expected returns and the subjective probability of rare disasters are negatively related, both within and across investors. These five facts provide useful guidance for the design of macro-finance models.

Suggested Citation

  • Stefano Giglio & Matteo Maggiori & Johannes Stroebel & Stephen Utkus, 2019. "Five Facts about Beliefs and Portfolios," NBER Working Papers 25744, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25744
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    More about this item

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F3 - International Economics - - International Finance
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G1 - Financial Economics - - General Financial Markets
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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