Who takes risks, when and why: Determinants of changes in investor risk taking

Between September '08 and June '09, a period with significant market events, we surveyed UK online-brokerage customers at 3-month intervals for their willingness to take risk, 3-month expectations of returns and risks for the market and their own portfolio, and self-reported risk attitude. This unique dataset allowed us to analyze how these variables changed over time, and whether changes in risk taking were related to changes in expectations and/or risk attitudes. Risk taking changed substantially during the period, as did return and risk expectations. Numeric assessments of return and risk expectations were only weakly correlated with corresponding subjective judgments. Consistent with the risk-as-feelings hypothesis, changes in risk taking were associated with changes in subjective expectations of market portfolio risk and returns, but less with changes in numeric expectations.