1. Investor Behavior in Times of Crisis Behavioral Finance Roundtable 3/21 Daniel Dorn

2. The crises Returns Volatility - FEAR

3. Two important aspects of behavior - equity allocation: how much in equities? - equity composition: stocks versus funds? Data: 40,000 self-directed clients at a top 3 German retail bank What did investors do? Why did they do it? What should they have done? Investor Behavior During the Crisis

4. What did investors do? “Many [investors] have headed for the exits… [and] pulled a record of 72 billion from the stock funds overall in October alone.” Wall Street Journal, December 2008 Goldman Sachs report, January 2013

5. What did investors do? Source: Dorn/Weber, 2013

6. On average, investors bought equities during the crisis Individual stock inflows outweighed stock fund outflows Small investors New entrants Who sold equities during the crisis? Investors without crisis experience Investors with large active fund holdings What did investors do?

7. Source: Dorn/Weber, 2013

8. On average, investors rebalanced from stock funds into individual stocks, especially during the crisis Which stock funds do they shun? Expensive funds Foreign stock funds Funds affiliated with publicly traded financial institutions What did investors do?

9. Loss of trust in financial intermediation Increased sensitivity to costs of active management? Investors learn from own experience rather than passive observation Why did they do it?

10. Objective need for financial advice! Loss of trust - stress independence - shift towards passive products Use concept of experienced returns to help investors learn? Implications