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


Braggion, Fabio; Von Meyerinck, Felix; Schaub, Nic (2023). Inflation and Individual Investors' Behavior: Evidence from the German Hyperinflation. Review of Financial Studies, 36(12):5012-5045.

Abstract

We analyze 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 German 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. Moreover, we 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.

Abstract

We analyze 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 German 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. Moreover, we 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.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scope:Discipline-based scholarship (basic research)
Language:English
Date:20 November 2023
Deposited On:28 Aug 2023 13:30
Last Modified:30 May 2024 01:44
Publisher:Oxford University Press
ISSN:0893-9454
Additional Information:Bereits als Working Paper in University of St.Gallen - School of Finance Research Paper erschienen: https://doi.org/10.2139/ssrn.3802488.
OA Status:Hybrid
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1093/rfs/hhad047
Related URLs:https://www.zora.uzh.ch/id/eprint/235049/ (Organisation)
https://doi.org/10.2139/ssrn.3802488
Other Identification Number:merlin-id:23650
  • Content: Published Version
  • Language: English
  • Licence: Creative Commons: Attribution 4.0 International (CC BY 4.0)