Working Paper: NBER ID: w27227
Authors: Alexander M. Chinco; Samuel M. Hartzmark; Abigail B. Sussman
Abstract: Textbook finance theory assumes that investors strategically try to insure themselves against bad future states of the world when forming portfolios. This is a testable assumption, surveys are ideally suited to test it, and we develop a framework for doing so. Our framework combines survey experiments with field data to test this assumption as it pertains to any candidate risk factor. We study consumption growth to demonstrate the approach. While participants strategically respond to changes in the mean and volatility of stock returns when forming their portfolios, there is no evidence that investors view this canonical risk factor as relevant.
Keywords: risk factors; portfolio decisions; investment behavior; survey experiments
JEL Codes: D81; D91; E21; G11; G12; G4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mean and volatility of stock returns (G17) | stock allocations (G12) |
| stock returns and consumption growth (E21) | stock allocations (G12) |