SFB 504 discussion paper
L 13, 15, D-68131 Mannheim
Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre
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September 11 and Stock Return Expectations of Individual Investors
- This study offers the unique opportunity to analyze how an
unprecedented crisis such as the September 11 tragedy influences
expected returns and volatility forecasts of individual investors.
Via e-mail, we asked a randomly selected group of individual
investors with accounts at a German online broker to answer an
internet questionnaire at the beginning of August, 2001. A second
e-mail to the investors who have not yet answered, scheduled five
weeks later, was postponed due to the terror attacks until
September 20, which was exactly the day with the lowest share
prices in Germany in the year 2001. Based on the answers to
questions concerning stock market predictions, we find that return
forecasts of the investors in our sample are significantly higher
after September 11. The actual returns from the respective time of
response until the end of the year 2001 are overestimated in both
groups. The second group of investors states return forecasts that
are approximately twice as high as the true realized returns.
After the terror attacks, volatility forecasts are higher than
before September 11. In two out of four cases, historical
volatilities are overestimated. Therefore, investors are not
generally overconfident in the way that they underestimate the
variance of stock returns. Differences of opinion with regard to
return forecasts are lower after the terror attacks whereas
differences of opinion concerning volatility forecasts are mainly
unaffected. Furthermore, differences of opinion are generally
higher with regard to return (point) forecasts when compared to
differences of opinion with regard volatility forecasts.
- B4 Weber
- Creation date:
- Publication Status
- Review of Finance, 9, 243-279, 2005.
- Downloadable version
- Download titlepage for internal use only
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