Individual Investor Perceptions and Behavior During the Financial Crisis

A.O.I. Hoffmann, T. Post, J.M.E. Pennings

Research output: Contribution to journalArticleAcademicpeer-review

123 Citations (Scopus)

Abstract

Combining monthly survey data with matching trading records, we examine how individual investor perceptions change and drive trading and risk-taking behavior during the 2008–2009 financial crisis. We find that investor perceptions fluctuate significantly during the crisis, with risk tolerance and risk perceptions being less volatile than return expectations. During the worst months of the crisis, investors’ return expectations and risk tolerance decrease, while their risk perceptions increase. Towards the end of the crisis, investor perceptions recover. We document substantial swings in trading and risk-taking behavior that are driven by changes in investor perceptions. Overall, individual investors continue to trade actively and do not de-risk their investment portfolios during the crisis.
Original languageEnglish
Pages (from-to)60-74
JournalJournal of Banking and Finance
Volume37
Issue number1
DOIs
Publication statusPublished - 2013

Keywords

  • common-stock investment
  • subprime crisis
  • risk-taking
  • market
  • overconfidence
  • returns
  • fluctuations
  • performance
  • dispersion
  • sentiment

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