Working Paper: NBER ID: w20360
Authors: Danny Yagan
Abstract: Household investors chase stock market returns. Surveys suggest that households intend to "ride the bubble" by buying stocks early in a boom and selling stocks early in a bust. This implies that households use only liquid assets to chase returns. I test this prediction using inflows to fixed annuities---illiquid tax-preferred assets that lock wealth out of the stock market for five to ten years. I find that fixed annuity inflows spike after poor stock market returns, inconsistent with ride-the-bubble intentions and instead indicating buy-and-hold intentions. The results are consistent with households extrapolating recent stock market returns into the long run.
Keywords: Household Investors; Stock Market Returns; Annuities; Illiquid Assets
JEL Codes: G00; H00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lagged S&P returns (G12) | Fixed annuity inflows (G23) |
| Lagged S&P returns (second lag) (G12) | Fixed annuity inflows (G23) |
| Lagged S&P returns (third lag) (G12) | Fixed annuity inflows (G23) |
| Lagged S&P returns (fourth lag) (G17) | Fixed annuity inflows (G23) |