Subjective Return Expectations, Perceptions, and Portfolio Choice

Hector Calvo-Pardo, Xisco Oliver and Luc Arrondel
Additional contact information
Hector Calvo-Pardo: Economics and CPC, Highfield Campus, University of Southampton, Bld 58, R3113, ESPS, FSS, Southampton SO171BJ, UK
Luc Arrondel: PSE-CNRS, 75014 Paris, France
Authors registered in the RePEc Author Service: Hector Fernando Calvo Pardo

JRFM, 2021, vol. 15, issue 1, 1-29

Abstract: Exploiting a representative sample of the French population by age, wealth, and asset classes, we document novel facts about their expectations and perceptions of stock market returns. Both expectations and perceptions of returns are very dispersed, significantly lower than their data counterparts, and a substantial portion of the variation in the former is explained by dispersion in the latter. Consistent with portfolio choice models under incomplete information, a conditional risk-return trade-off explains the intensive margin, while at the extensive margin, only expected returns matter. Despite accounting for survey measurement error in subjective return expectations, ’muted sensitivities’ at both portfolio choice margins obtain, getting consistently (i) bigger when excluding informed non-participants, and (ii) smaller, for inertial and professionally delegated portfolios.

Keywords: subjective expectations; perceptions; portfolio choice; household finance (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Subjective Return Expectations, Perceptions, and Portfolio Choice (2022)
Working Paper: Subjective Return Expectations, Perceptions, and Portfolio Choice (2022)
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