Working Paper: NBER ID: w16464
Authors: Michael D. Hurd; Maarten van Rooij; Joachim Winter
Abstract: Despite its importance for the analysis of life-cycle behavior, stock ownership by households is poorly understood. Among other approaches to the investigation of this puzzle, recent research has elicited the expectations of stock market returns by individuals. This paper reports findings from a study that collected data over a two-year period both on stock market expectations (subjective probabilities of gains or losses) and on stock ownership. On average stock market expectations are much more pessimistic about gains than the historical record of actual gains. Expectations are heterogeneous, and they are correlated with stock ownership. Over the two years of our data, stock market prices increased, and expectations of future stock market price changes also increased, lending support to the view that expectations are influenced by recent stock gains or losses.
Keywords: stock market expectations; Dutch households; financial behavior; lifecycle behavior; retirement planning
JEL Codes: C42; D12; D84; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher subjective probabilities of gains (D81) | Increased stock ownership (G34) |
| Lower subjective probabilities of gains (D81) | Lower stock ownership (G32) |
| Shifts in subjective rates of return (G19) | Increased optimism among respondents (E66) |
| Transitions into stock ownership (G34) | Increases in subjective probabilities of gains (D81) |
| Transitions out of stock ownership (G19) | Decreases in subjective probabilities of gains (D81) |