NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Riding the Bubble? Chasing Returns into Illiquid Assets

Danny Yagan

NBER Working Paper No. 20360
Issued in July 2014
NBER Program(s):   AG   PE

Household investors chase stock market returns. Surveys suggest that households intend to "ride the bubble" by buying stocks early in a boom and selling stocks early in a bust. This implies that households use only liquid assets to chase returns. I test this prediction using inflows to fixed annuities---illiquid tax-preferred assets that lock wealth out of the stock market for five to ten years. I find that fixed annuity inflows spike after poor stock market returns, inconsistent with ride-the-bubble intentions and instead indicating buy-and-hold intentions. The results are consistent with households extrapolating recent stock market returns into the long run.

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Document Object Identifier (DOI): 10.3386/w20360

 
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