Adam Smith Business School

Dr Cameron Peng, London School of Economics

"Investor Memory and Biased Beliefs: Evidence from the Field"
Wednesday, 20 September. 15:00
Room 248, Wolfson Medical School

Abstract

We survey a large representative sample of retail investors to elicit their memories of stock market investment and return expectations. We merge the survey data with administrative data of transactions to test a model in which investors selectively recall past experiences similar to the present cue to form beliefs. Our analysis uncovers new facts about investor memory and supports similarity-based recall as a key mechanism of belief formation in financial markets. When the market is going up, it cues investors to retrieve episodes of rising markets and recall their past performances more positively. Recalled experiences explain a sizable fraction of cross-investor variation in beliefs and dominate actual experiences in explanatory power. Recalled experiences can also drive out the explanatory power of recent returns for expected future returns, ruling in a memory-based foundation for return extrapolation.

Bio

Cameron Peng is an Assistant Professor of Finance at the London School of Economics and Political Science. Peng’s research focuses on behavioural finance, household finance, and empirical asset pricing. His research has been published in top finance journals such as the Review of Financial Studies and the Journal of Financial Economics. In ongoing research, Peng examines the conditions under which people underreact or overreact to new information, the allocation of bargaining power in intrahousehold financial decisions, and how memory shapes the retrieval of past experiences and affects expectation formation and trading behaviour. Peng holds B.A. in Finance from Peking University and Ph.D. in Financial Economics from Yale University.

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First published: 11 August 2023