Stock Market Expectations of Dutch Households

Despite its importance for the analysis of life-cycle behavior, stock ownership by households is poorly understood. Among other approaches to the investigation of this puzzle, recent research has elicited the expectations of stock market returns by individuals. This paper reports findings from a study that collected data over a two-year period both on stock market expectations (subjective probabilities of gains or losses) and on stock ownership. On average stock market expectations are much more pessimistic about gains than the historical record of actual gains. Expectations are heterogeneous, and they are correlated with stock ownership. Over the two years of our data, stock market prices increased, and expectations of future stock market price changes also increased, lending support to the view that expectations are influenced by recent stock gains or losses.