Investment Performance and the Formation of Horizon-Specific Inflation Expectations: Evidence from Japanese Investors
Inflation expectations are central to monetary policy transmission, yet relatively little is known about whether individuals’ own investment experiences are associated with how they form such expectations across different forecast horizons. This study examines the association between self-reported past investment performance and horizon-specific expected cumulative consumer price changes at the one-, three-, and five-year horizons using a large-scale online survey of 157,523 active Japanese investors. Because the survey asks respondents how consumer prices will change over each horizon, the three- and five-year responses are interpreted as expected cumulative price changes rather than annualized inflation rates. Ordered probit models are estimated while controlling for demographic, socioeconomic, and behavioral characteristics. The results show a horizon-dependent conditional association: self-reported investment performance is not significantly associated with one-year expectations in the full specification, whereas it is positively and significantly associated with three- and five-year expectations. Formal stacked OLS interaction tests indicate that the association differs significantly across horizons, and additional threshold-specific probit models show that the pattern is most evident for moderate inflation-expectation thresholds. The economic magnitudes are statistically precise but modest. Heterogeneity analyses further suggest that the association is weaker among respondents with higher financial literacy and higher assets, and stronger among respondents with a more myopic view of the future. Because the analysis relies on cross-sectional observational data and subjective performance measures, the findings should be interpreted as conditional associations rather than causal effects.