Who Sold During the Crash of 2008-9? Evidence from Tax-Return Data on Daily Sales of Stock

Abstract

At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w22209.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Volatility Expectations and Returns

“…This will result in a risk-return tradeoff that resembles the standard case. Further, Hoopes et al (2017) show evidence that investors do react to changes in volatility with more sophisticated investors (e.g., those in highest income brackets) responding most quickly. That is, it does not appear agents are not aware and do not act on changes in volatility.…”

“…Finally, both the individual survey evidence from Giglio et al (2019) and the evidence on actual trading behavior in Hoopes et al (2017) suggest that heterogeneity in beliefs about risk is important, though our model features a representative agent.…”

“…Giglio et al (2019) also find that agents views about risk are directly informative for their portfolio decisions, with higher expectations of stock market risk being associated with a lower allocation to stocks. A shortcoming of our model is that it features a representative investor and so does not speak directly to this evidence (as there is no trade in equilibrium), though modest extensions of the model which allow for differences in the amount of bias would naturally be consistent with the evidence on trading behavior in Hoopes et al (2017).…”

“…Hoopes, Langetieg, Nagel, Reck, Slemrod, and Stuart (2017) show evidence that investors do react to changes in volatility with more sophisticated investors and older investors responding more strongly. Specifically, they show that higher income and older investors sell more aggressively following increases in volatility.…”

How Do Taxes Affect the Trading Behavior of Private Investors? Evidence From Individual Portfolio Data

“…Two recent studies use US tax-return data that include information on sales at a less aggregated frequency. Hoopes et al (2016) have daily data on sales, but their study is not about tax effects. Dowd and McClelland (2019) use American IRS data on capital realizations for directly held assets on the level of the single transaction.…”