Five Facts about Beliefs and Portfolios
We study a newly-designed survey administered to a large panel of wealthy retail investors. The survey elicits beliefs that are important for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition, their trading activity, and their log-in behavior. 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) Belief changes do not predict when investors trade, but conditional on trading, they affect both the direction and the magnitude of trades. (3) Beliefs are mostly characterized by large and persistent individual heterogeneity. Demographic characteristics explain only a small part of why some individuals are optimistic and some are pessimistic. (4) Expected cash flow growth and expected returns are positively related, both within and across investors. (5) Expected returns and the subjective probability of rare disasters are negatively related, both within and across investors. These five facts provide useful guidance for the design of macro-finance models.
Stephen Utkus is employed at Vanguard in a research capacity. Giglio, Maggiori, and Stroebel are unpaid consultants at Vanguard in order to access the anonymized data. Vanguard provided anonymized portfolio and survey data as well as survey research services for this project. We thank Klaus Adam, Isaiah Andrews, Nick Barberis, John Campbell, Darrell Duffie, Ben Enke, John Geanakoplos, Nicola Gennaioli, Gary Gorton, Camelia Kuhnen, Arvind Krishnamurthy, Hanno Lustig, Yueran Ma, Emi Nakamura, Stefan Nagel, Frank Schilbach, Alexi Savov, Amit Seru, and Andrei Shleifer, as well as numerous seminar and conference participants. The authors would also like to thank Catherine Clinton, Sophia Bunyaraksh, and Jean Young at Vanguard for their help with the project. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Investors increase the share of equities in their portfolios by about 0.7 percentage points when the return that they...
Stefano Giglio & Matteo Maggiori & Johannes Stroebel & Stephen Utkus, 2021. "Five Facts about Beliefs and Portfolios," American Economic Review, American Economic Association, vol. 111(5), pages 1481-1522, May. citation courtesy of