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Discussion Paper Details

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

Author(s): Fabio Braggion, Felix Meyerinck and Nic Schaub

Publication Date: March 2021

Keyword(s): behavioral biases, Individual investors, inflation, Investor Behavior and Money illusion

Programme Area(s): Economic History and Financial Economics

Abstract: Inflation risk represents one of the most important economic risks faced by investors. In this study, we analyze how investors respond to inflation. We introduce a unique dataset containing local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the famous German hyperinflation. We find that 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 investors suffering from money illusion.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15947

Bibliographic Reference

Braggion, F, Meyerinck, F and Schaub, N. 2021. 'Inflation and Individual Investors' Behavior: Evidence from the German Hyperinflation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15947