Do investors walk their talk? Intention-behavior consistency of robo-advisor investors during stock market downturns

Abstract: Robo-advisors, as computer-automated investment platforms following passive investment strategies, have gained a lot of popularity, customers, and assets under management in recent years. They offer accessible and affordable wealth management solutions to a wide customer base through low fees and minimum investment amounts while providing well-diversified portfolios at individually assessed risk profiles. This paper serves to examine the intention-behavior consistency of these investors related to stock market downturns in order to understand whether investors walk their talk and sell, hold, or buy when stock markets decline. By building on an interdisciplinary approach using both, the psychological theory of planned behavior and the economic theory of hyperbolic discounting, we highlight the role of investors' self-regulation. Through conducting a stepwise logistic regression on anonymized data of 10,000 customers of a Scandinavian robo-advisor as well as an out-of-sample prediction on a second data set, we find that many investors act inconsistently with their intentions during stock market downturns. Furthermore, results indicate that investors with intentions of inaction, investors of older age, investors who identify as female, and investors without sustainability preferences act more consistently. Lastly, we observe that the time between the onboarding and the stock market downturn does not have a clear effect on consistency. These results pose several implications regarding the design of robo-advisors and their investors' self-regulation.