Five Facts About Beliefs and Portfolios


Giglio, Stefano, Matteo Maggiori, Johannes Stroebel, and Stephen Utkus. “Five Facts About Beliefs and Portfolios,” Working Paper.


We administer a newly-designed survey to a large panel of individual investors who have substantial wealth invested in financial markets. The survey elicits beliefs that are crucial for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition and their trading activity. 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) It is hard to predict when investors trade, but conditional on trading, belief changes affect both the direction and the magnitude of trades. (3) Beliefs are mostly characterized by large and persistent individual heterogeneity; demographic characteristics struggle to explain why some individuals are optimistic and some are pessimistic. (4) Investors disagree about both expected cash flows and discount rates. At the investor level, higher expected cash flows are associated with higher discount rates. (5) Expected returns and the probability of rare disasters are negatively related. Our results challenge the rational expectation framework for macro-finance, and provide important guidance for the design of behavioral models.


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Last updated on 06/04/2019