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Riding the Bubble? Chasing Returns into Illiquid Assets

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  • Danny Yagan

Abstract

Household investors chase stock market returns. Surveys suggest that households intend to "ride the bubble" by buying stocks early in a boom and selling stocks early in a bust. This implies that households use only liquid assets to chase returns. I test this prediction using inflows to fixed annuities---illiquid tax-preferred assets that lock wealth out of the stock market for five to ten years. I find that fixed annuity inflows spike after poor stock market returns, inconsistent with ride-the-bubble intentions and instead indicating buy-and-hold intentions. The results are consistent with households extrapolating recent stock market returns into the long run.

Suggested Citation

  • Danny Yagan, 2014. "Riding the Bubble? Chasing Returns into Illiquid Assets," NBER Working Papers 20360, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20360
    Note: AG PE
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    Cited by:

    1. Cagnazzo, Alberto, 2022. "Market-timing performance of mutual fund investors in Emerging Markets," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 378-394.

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    JEL classification:

    • G0 - Financial Economics - - General
    • H0 - Public Economics - - General

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