We show theoretically that the weak transmission of beliefs to actions induces a strong bias in basic asset pricing tests. In particular, expected returns can appear to decline in risk when investors weakly transmit their payoff expectations into willingness to pay. We experimentally test this...

We theoretically show that there is a fundamental disconnect between the disposition effect, i.e., investors’ tendency to sell winning assets too early and losing assets too late, and its common empirical measure, namely a positive difference between the proportion of gains and losses...

We administer a newly-designed survey to a large panel of retail investors who have substantial wealth invested in financial markets. The survey elicits beliefs that are crucial for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition and...

This paper examines whether there exists a momentum effect after one-day abnormal returns in the cryptocurrency market. For this purpose a number of hypotheses of interest are tested for the BitCoin, Ethereum and LiteCoin exchange rates vis-à-vis the US dollar over the period...

Attention utility is the hedonic pleasure or pain derived purely from paying attention to information. Using data on brokerage account logins by individual investors, we show that individuals devote disproportionate attention to already-known positive information about the performance of...

We study how background health risk affects financial risk-taking. We elicit financial risk-taking behavior of a representative sample of more than 5,000 Germans in five panel waves during the COVID-19 pandemic. Exploiting variation in local infections across time and space, we find that an...

We show that the disposition effect–the tendency of investors to hold losers and sell winners–can be a source of overconfidence. We find experimental evidence that individuals update beliefs about their own investment ability based on realized gains and losses rather than the overall...

The adaptive learning approach has been fruitfully employed to model the formation of aggregate expectations at the macroeconomic level, as an alternative to rational expectations. This paper uses adaptive learning to understand, instead, the formation of expectations at the micro-level, by...

Even though external debt can play a buffer role against adverse shocks to assist consumption smoothing, it may also exert a volatility amplifying effect, depending on the currency of denomination and the cyclicality of the borrower's exchange rate. We empirically investigate the nexus between...