Abstract We survey a representative sample of U.S. households to study how exposure to the COVID-19 stock market crash affects expectations and planned behavior. Wealth shocks are associated with upward adjustments of expectations about retirement age, desired working hours, and household debt but have only small effects on expected spending. We provide correlational and experimental evidence that beliefs about the duration of the stock market recovery shape households' expectations about their own wealth and their planned investment decisions and labor market activity. Our findings shed light on the implications of household exposure to stock market crashes for expectation formation.

Abstract We survey retail investors at an online bank to study how beliefs about the autocorrelation of aggregate stock returns shape investment decisions measured in administrative account data. Individuals’ beliefs exhibit substantial heterogeneity and predict trading responses to market movements. We inform half of our respondents that, historically, the autocorrelation was close to zero, which causes them to update their perceived current autocorrelation and return expectations. The treatment shifts respondents’ equity purchases during the COVID-19 crash months later in the direction implied by the intervention. Our results provide causal evidence about the drivers of disagreement and trade in asset markets.