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7. Dezember 2022

Cluster-Seminar Öffentliche Finanzen und Lebenslagen

Subjective belief formation and stock market participation in Germany


7. Dezember 2022


Karl Popper Room
DIW Berlin
Room 2.3.020
Mohrenstr. 58
10117 Berlin


Sebastian Becker

This paper exploits unique variation induced by two information treatments on a sample of German households in 2017 and 2018 to evaluate how subjective belief formation about stock market returns affects stock market participation and portfolio choice. I find that on average the information treatments do not shift individual expectations about returns significantly. Additionally, I show that responses to treatment are highly heterogeneous and that respondents can be classified into three different groups based on how they incorporate the additional information into their beliefs. Lastly, I illustrate that integrating biased beliefs formation in a standard portfolio choice life cycle framework can help to explain a significant part of the anomalies of the households investment behavior like low participation rates and relatively constant risky portfolio shares across age and wealth distribution.