Inflation and Individual Investors' Behavior: Evidence from the German Hyperinflation

Series
School of Finance Working Series
Type
working paper
Date Issued
2021-03-15
Author(s)
Braggion, Fabio
;
;
Abstract
This paper analyzes how individual investors respond to inflation. We introduce a unique dataset containing information on local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the hyperinflation. We find that individual investors buy less (sell more) stocks when facing higher local inflation. This effect is more pronounced for less sophisticated investors. We also document a positive relation between local inflation and forgone returns following stock sales. Our findings are consistent with individual investors suffering from money illusion. Alternative explanations such as consumption needs are unlikely to drive our results.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Volume
2021
Number
07
Pages
73
URL
Subject(s)

economics

finance

Division(s)

SBF - Swiss Institute...

Contact Email Address
felix.meyerinck@unisg.ch
Eprints ID
264701
File(s)
Thumbnail Image

open.access

Name

2021_07_vMeyerinck_Braggion_Schaub_(Update)_Inflation and Individual Investors Behavior_Evidence from the German Hyperinflation.pdf

Size

8.54 MB

Format

Adobe PDF

Checksum (MD5)

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