Retail Investor Expectations and Trading Preferences

Using a novel quarterly survey of 23 thousand Australian retail equity investors spanning eight years, we study the relationship between investor beliefs and their trading preferences. We provide evidence that, consistent with Mean-Variance preferences, both lower returns and higher volatility increase the marginal propensity to sell. Furthermore, we find that while demographic characteristics and investment experiences are predictive of the holding preferences of retail investors, they are uninformative about their trading directional preferences (i.e. whether to buy or sell). Our findings suggest that a representative-agent portfolio model with Mean-Variance preferences is sufficient to explain the trading directional preferences of retail investors, but not their holding patterns