Investor Behaviour Facing Risk : Neurofinance and Financial Crises.

Summary This thesis studies the behavior of investors through their performance and expectations during the 2008-2011 financial crises and their beliefs. It consists of three chapters. In the first chapter, we review the existing literature on individual investors' performance, behavioral biases and preferences. We show the main shortcomings in terms of individual investors' performance as well as their main behavioral biases. We also highlight the contribution of neuroscience to the understanding of individual investors' behavior. In the second chapter, we study the impact of the 2008-2011 financial crises on the performance of individual investors and their expectations of their financial intermediaries in four different countries: Germany, Belgium, Luxembourg, and France. We also make a comparison according to the level of wealth of investors within each country but also globally. Our data comes from questionnaires distributed to asset managers at the largest banks in the countries considered, as well as from historical market data for each of these countries. We show that the wealthiest investors are the least risk averse both before and after financial crises, regardless of the country considered. We also find that they adopt the least conservative investment strategies. Finally, we find a significant change in investors' expectations of their financial intermediaries, demanding more transparency and better customer service, regardless of wealth level. We also show that these expectations can be contradictory, especially among the least wealthy investors. In the third chapter, we provide an experimental test of belief formation among individual investors based on the Brunnermeier and Parker (2005) model. We use an experiment with two identical lotteries except for their skewness. We show that participants in this experiment experience anticipatory emotions once they learn about the lottery they will play. These emotions are formed from the second minute of waiting and remain stable until they become aware of their winnings. Moreover, these anticipatory emotions are as strong as those felt once they know their winnings. Finally, we show that lottery participants with positive skewness have less self-regulation capacity than other subjects. The emotions they feel are stronger and more persistent than in the others.