Working Paper: NBER ID: w25019
Authors: James J. Choi; Adriana Z. Robertson
Abstract: We survey a representative sample of U.S. individuals about how well leading academic theories describe their financial beliefs and decisions. We find substantial support for many factors hypothesized to affect portfolio equity share, particularly background risk, investment horizon, rare disasters, transactional factors, and fixed costs of stock market participation. Individuals tend to believe that past mutual fund performance is a good signal of stock-picking skill, actively managed funds do not suffer from diseconomies of scale, value stocks are safer and do not have higher expected returns, and high-momentum stocks are riskier and do have higher expected returns.
Keywords: Investors; Portfolio Choice; Mutual Funds; Behavioral Finance
JEL Codes: D14; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| background risk (D80) | individual investors' portfolio equity share decisions (G11) |
| investment horizon (G11) | individual investors' portfolio equity share decisions (G11) |
| rare disasters (H84) | individual investors' portfolio equity share decisions (G11) |
| transactional factors (L14) | individual investors' portfolio equity share decisions (G11) |
| fixed costs of stock market participation (G10) | individual investors' portfolio equity share decisions (G11) |
| time left until retirement (J26) | individual investors' portfolio equity share decisions (G11) |
| non-retirement expenses (D14) | individual investors' portfolio equity share decisions (G11) |
| health risk (I12) | individual investors' portfolio equity share decisions (G11) |
| labor income risk (J39) | individual investors' portfolio equity share decisions (G11) |
| home value risk (G51) | individual investors' portfolio equity share decisions (G11) |
| lack of trust in market participants (G18) | individual investors' portfolio equity share decisions (G11) |
| discomfort with the market (D52) | individual investors' portfolio equity share decisions (G11) |
| past performance (C52) | individual investors' portfolio equity share decisions (G11) |