Investment motives and performance expectations of impact investors

Kremena Bachmann, Julia Meyer and Annette Krauss

Journal of Behavioral and Experimental Finance, 2024, vol. 42, issue C

Abstract: Using a unique sample of retail impact investors, this study evaluates how investors deal with the challenge of aligning their financial and their nonfinancial goals. We find that investors with stronger nonfinancial motives are more likely to expect the overperformance of an impact investment and the underperformance of traditional equity and bond investments than investors with weaker nonfinancial motives. This cross-asset relationship between nonfinancial motives and expected performance indicates that investors form expectations that fit with the investment decisions that their nonfinancial motives are likely to motivate. We also find that after experiencing losses, investors with stronger nonfinancial motives are less likely to revise their expectation that the impact investment will underperform and more likely to expect that the impact investment will overperform than other investors. Our findings provide further evidence that preferences can affect expectations, and challenge conclusions drawn from observed behavior regarding investors’ willingness to pay for impact.

Keywords: Nonfinancial motives; Expectations; Wishful thinking; Halo effect; Impact investing (search for similar items in EconPapers)
JEL-codes: G10 G11 G21 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:42:y:2024:i:c:s2214635024000261

DOI: 10.1016/j.jbef.2024.100911

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