December 7, 2022

Cluster-Seminar Public Finances and Living Conditions

Subjective belief formation and stock market participation in Germany

Date

December 7, 2022
12:30-13:30

Location

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

Speakers

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.

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