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How Return and Risk Experiences Shape Investor Beliefs and Preferences

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Combining brokerage records and matching monthly survey measurements of
a sample of individual investors from the Netherlands for the period April 2008
through March 2009, we examine how individual investors update their beliefs
(return expectations and risk perceptions) and preferences (risk tolerance) as a
result of their personal return and risk experiences. We find that investors’ past
returns positively impact return expectations and risk tolerance, and negatively
impact risk perceptions. Realised risk, however, has no effect. That is, even in a highly volatile stock market period in which risk appears very salient, investors
do not take it into account when updating their beliefs and preferences.

    Research areas

  • Behavioural Finance, Individual Investors, Return Experiences, Risk Experiences, Investor Beliefs, Investor Preferences, FINANCIAL RISK, HOT-HAND, EXPECTATIONS, PERCEPTIONS, PERFORMANCE, RANDOMNESS, PSYCHOLOGY, TOLERANCE, DECISIONS, FREQUENCY


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Original languageEnglish
Pages (from-to)759-788
Number of pages30
JournalAccounting and Finance
Issue number3
Publication statusPublished - Sep 2017