Investor Memory and Biased Beliefs: Evidence from the Field

Zhengyang Jiang, Hongqi Liu, Cameron Peng and Hongjun Yan

No 19871, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We survey a large, representative sample of retail investors in China to elicit their memories of stock market investments and their return expectations. We merge this survey data with administrative transaction data to test a model in which investors selectively recall past experiences to form their beliefs. Our analysis uncovers new facts about investor memory and highlights similarity-based recall as a novel mechanism of belief formation in financial markets. A rising market prompts investors to recall their past experiences more positively, leading to more optimistic forecasts of future returns. Recalled experiences explain a sizable fraction of cross-investor variation in return expectations and dominate actual experiences in their explanatory power. In the transaction data, we confirm that recalled experiences affect investors’ trading decisions through a belief channel.

Keywords: Memory; Trading (search for similar items in EconPapers)
JEL-codes: D14 D91 G41 (search for similar items in EconPapers)
Date: 2025-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19871 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19871

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19871

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().