24. Post-Crisis Investor Behavior: Experience Matters

  1. H. Kent Baker and
  2. Victor Ricciardi
  1. Joseph V. Rizzi

Published Online: 1 MAR 2014

DOI: 10.1002/9781118813454.ch24

Investor Behavior: The Psychology of Financial Planning and Investing

Investor Behavior: The Psychology of Financial Planning and Investing

How to Cite

Rizzi, J. V. (2014) Post-Crisis Investor Behavior: Experience Matters, in Investor Behavior: The Psychology of Financial Planning and Investing (eds H. K. Baker and V. Ricciardi), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118813454.ch24

Author Information

  1. President, Macro Strategies, LLC

Publication History

  1. Published Online: 1 MAR 2014
  2. Published Print: 31 JAN 2014

ISBN Information

Print ISBN: 9781118492987

Online ISBN: 9781118813454

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Keywords:

  • behavioral finance;
  • financial crisis;
  • generational memory;
  • quantitative finance;
  • risk management;
  • risk tolerance

Summary

The historic financial crisis in 2008 seriously affected investors. In general, stock market values declined by about 50 percent but largely recovered from pre-crisis levels by the end of 2012 due in part to unprecedented stimulus efforts. Nonetheless, the cumulative return on stocks over the five-year period was close to zero. Investors are likely to learn from this experience and may adjust their investment behavior. Both individual experience and the collective behavior of groups sharing the same historical event influence risk tolerance. Recent studies highlighting a collective memory effect support this notion, which has important implications for investor asset allocation decisions. This chapter illustrates how a lingering generational effect influences the risk appetite and equity allocations of younger investors.