Inside the Mind of a Stock Market Crash

Stefano Giglio, Matteo Maggiori, Johannes Stroebel and Stephen Utkus

No 8334, CESifo Working Paper Series from CESifo

Abstract: We analyze how investor expectations about economic growth and stock returns changed during the February-March 2020 stock market crash induced by the Covid-19 pandemic, as well as during the subsequent partial stock market recovery. We surveyed retail investors who are clients of Vanguard at three points in time: (i) on February 11-12, around the all-time stock market high, (ii) on March 11-12, after the stock market had collapsed by over 20%, and (iii) on April 16-17, after the market had rallied 25% from its lowest point. Following the crash, the average investor turned more pessimistic about the short-run performance of both the stock market and the real economy. Investors also perceived higher probabilities of both further extreme stock market declines and large declines in short-run real economic activity. In contrast, investor expectations about long-run (10-year) economic and stock market outcomes remained largely unchanged, and, if anything, improved. Disagreement among investors about economic and stock market outcomes also increased substantially following the stock market crash, with the disagreement persisting through the partial market recovery. Those respondents who were the most optimistic in February saw the largest decline in expectations, and sold the most equity. Those respondents who were the most pessimistic in February largely left their portfolios unchanged during and after the crash.

Keywords: surveys; expectations; sentiment; behavioural finance; trading; rare disasters (search for similar items in EconPapers)
JEL-codes: G11 G12 R30 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Inside the Mind of a Stock Market Crash (2020)
Working Paper: Inside the Mind of a Stock Market Crash (2020)
Working Paper: Inside the Mind of a Stock Market Crash (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8334

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