Based on a unique combination of monthly survey data and matching trading records, we examine how individual investor perceptions change and drive trading and risk-taking behavior during the 2007–2009 financial crisis. Investor perceptions fluctuate significantly, with risk tolerance and risk perceptions being less volatile than return expectations. At the onset of the crisis, return expectations and risk tolerance sharply decline, while risk perceptions strongly increase. Towards the end of the crisis, these survey variables recover. We find substantial swings in trading and risk-taking behavior that are driven by changes in perceptions. As perceptions recover, trading and risk-taking behavior also return to pre-crisis levels. Although the crisis temporarily depresses individual investor perceptions and substantially changes their behavior, the impact of the crisis is not particularly long-lasting.
|Title of host publication||Proceedings of the 12th Symposium on Finance, Banking, and Insurance. Karlsruhe Institute of Technology (KIT), 15-16 December 2011, Karlsruhe, Germany|
|Publication status||Published - 2011|
|Event||12th Symposium on Finance, Banking, and Insurance, Karlsruhe, Germany - |
Duration: 15 Dec 2011 → 16 Dec 2011
|Conference||12th Symposium on Finance, Banking, and Insurance, Karlsruhe, Germany|
|Period||15/12/11 → 16/12/11|