Riding the Bubble? Chasing Returns into Illiquid Assets

Danny Yagan

No 20360, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Household investors chase stock market returns. Surveys suggest that households intend to "ride the bubble" by buying stocks early in a boom and selling stocks early in a bust. This implies that households use only liquid assets to chase returns. I test this prediction using inflows to fixed annuities---illiquid tax-preferred assets that lock wealth out of the stock market for five to ten years. I find that fixed annuity inflows spike after poor stock market returns, inconsistent with ride-the-bubble intentions and instead indicating buy-and-hold intentions. The results are consistent with households extrapolating recent stock market returns into the long run.

JEL-codes: G0 H0 (search for similar items in EconPapers)
Date: 2014-07
Note: AG PE
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Citations: View citations in EconPapers (2)

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