Speculative fever: Investor contagion in the housing bubble
| Authors | Bayer, Mangum, Roberts |
| Journal | American Economic Review |
| Year | 2021 |
| Type | Published Paper |
| Abstract | Historical anecdotes abound of new investors being drawn into a booming asset market, only to suffer when the market turns. While the role of investor contagion in asset bubbles has been explored extensively in the theoretical literature, causal empirical evidence on the topic is much rarer. This paper studies the recent boom and bust in the US housing market and establishes that many novice investors entered the market as a direct result of observing investing activity of multiple forms in their own neighborhoods and that "infected" investors performed poorly relative to other investors along several dimensions. |
| URL | https://doi.org/10.1257/aer.20171611 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes |
Tacit collusion among dominant banks: Evidence from round-yard loan pricing
| Authors | Chan, Lin, Lin |
| Year | 2021 |
| Type | Working Paper |
| Abstract | While there is no apparent reason for loan spreads to cluster at certain numbers, we find that around 70% of loans have round-yard spreads (i.e., multiples of 25 basis points). We hypothesize that dominant banks implicitly collude by using the round-yards as focal pricing points when negotiating with their borrowers. The tacit collusion leads to higher spreads and total costs of the round-yard-priced loans than non-round-yard-priced loans. Consistent with our tacit collusion hypothesis, dominant banks round up rather than round down loan spreads to the multiples of yards. Moreover, round-yard pricing is more prevalent among lower-quality and non-repeat borrowers. Overall, we provide the first evidence that dominant banks use round-yard pricing as an effective tool for tacit collusion in the loan market. |
| Keywords | Tacit collusion, dominant banks, round-yard pricing, bargaining power, loan spreads, round up |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3905375&dgcid=ejournal_htmlemail_behavioral:experimental:finance:ejournal_abstractlink |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
Listening in on investors' thoughts and conversations
| Authors | Chen, Hwang |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | A large literature in neuroscience and social psychology shows that humans are wired to be meticulous about how they are perceived by others. In this paper, we propose that impression management considerations can also end up guiding the content that investors transmit via word of mouth and inadvertently lead to the propagation of noise. We analyze server log data from one of the largest investment-related websites in the United States. Consistent with our proposition, we find that investors more frequently share articles that are more suitable for impression management despite such articles less accurately predicting returns. Additional analyses suggest that high levels of sharing can lead to overpricing. |
| Keywords | Social interactions, Social transmission bias, Asset prices |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X21003810 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Transmission Biases |
Media persuasion and consumption: Evidence from the Dave Ramsey Show
| Authors | Chopra |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Can entertaining mass media programs influence individual consumption and savings decisions? I study this question by examining the impact of the Dave Ramsey Show, an iconic US radio talk show which encourages people to spend less and save more. To that end, I combine household-level expenditure records from a large scanner panel with fine-grained information about the geographic coverage of the radio show over time. Exploiting the quasi-natural experiment created by the staggered expansion of the radio show from 2004 to 2019, I find that exposure to the radio show decreases monthly household expenditures. This effect is driven by households with initially high expenditures relative to their income. In a mechanism experiment, I document that listening to the radio show has a persistent effect on people's attitudes towards consumption and debt. This suggests that attitudinal changes are a key mechanism driving behavioral change. My findings highlight the potential of entertaining mass media programs for interventions aimed at changing people's financial decisions. |
| Keywords | Consumption, debt, entertainment, edutainment, household finance, mass media, persuasion, radio, savings |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3992358 |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Tesla: is now the time to invest? An examination of Tesla, social media, and its effect on stock
| Authors | Coiro |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Tesla is an American electric vehicle and clean energy company. They are based in Palo Alto, California and their product base consists of electric cars, battery energy storage, solar panels, and solar roof tiles. On an average day in 2021, Tesla stock sells for $700/share. We will review historical Tesla data and examine whether this particular stock is worth the investment? In addition to historical data, this research reviews the effect of traditional news and social media on human behavior. Exploring social media analytics, investor sentiment and behavior in hopes to gauge how these factors can impact Tesla and whether this should be taken into consideration prior to the investment. |
| Keywords | Tesla, Stock Market, Investment, Social Media, Investor, Human Behavior, Clean Energy, Solar, Electric Cars |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3908275&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Media and Textual Analysis |
Tesla: is now the time to invest? An examination of Tesla, social media, and its effect on stock
| Authors | Coiro |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Tesla is an American electric vehicle and clean energy company. They are based in Palo Alto, California and their product base consists of electric cars, battery energy storage, solar panels, and solar roof tiles. On an average day in 2021, Tesla stock sells for $700/share. We will review historical Tesla data and examine whether this particular stock is worth the investment. In addition to historical data, this research reviews the effect of traditional news and social media on human behavior. Exploring social media analytics, investor sentiment and behavior in hopes to gauge how these factors can impact Tesla and whether this should be taken into consideration prior to the investment. |
| Keywords | Tesla, stock market, investment, social media, investor, human behavior, clean energy, solar, electric cars |
| URL | https://ssrn.com/abstract=3908275 |
| Tags | Financing- and Investment Decisions (Individual) | Media and Textual Analysis |
Regressive mortgage credit redistribution in the post-crisis era
| Authors | D'Acunto, Rossi |
| Journal | Review of Financial Studies |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We document four secular trends about U.S. mortgage origination by traditional and FinTech lenders after the 2008-2009 financial crisis. First, since 2011, the overall number, size, and approval rate of small and medium-sized loans have been decreasing over time, relative to large loans. Second, the largest lenders redistribute their lending the most. Third, this loan-size redistribution of credit increases in the size of the lender. Fourth, the effects are stronger for mortgages further away from the conforming loan limit(s) in both directions. We argue that the supply of credit drives these secular trends, and we assess several potential economic mechanisms. |
| Keywords | Redistribution of mortgage credit, financial regulation reforms, supply-side forces, post-crisis era |
| URL | https://doi.org/10.1093/rfs/hhab008 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
Media attention and stock categorization: an examination of stocks hyped to benefit from the Olympics
| Authors | Dechow, Lawrence, Luo, Stamenov |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We investigate whether there are temporary valuation impacts on stocks that media outlets list as involved in a major sporting event (the summer Olympics). We examine five summer Olympics and identify stocks that media outlets hype as benefiting from the Olympics (Olympic stocks). We find that Olympic stocks exhibit increases in comovement of returns after the announcement of the winning bid and declines in comovements after the games are played, consistent with the Olympics being used by investors as a category for investment. Furthermore, Olympic stock returns outperform their matched counterparts over this time period. If the comovement and valuation benefits are due to changes in underlying economics then we expect to observe corresponding increases in comovements of fundamentals and improvements in profitability. However, we find no observable changes in fundamental comovements or profitability. Consistent with investor sentiment driving the categorization, we find that Olympic firms with a greater retail investor presence have stronger comovements effects; and trading volume and volatility are abnormally high for Olympic firms on days where media outlets have stories linking the firm to the Olympic games. To clarify event-based categorization occurs in other settings where media outlets classify stocks for investment, we show comovement increases for stocks classified as "Stay-at-Home" by analysts and the media and "Meme"Â by retail investors on the Reddit social media platform. |
| Keywords | Sports events, media, Olympics, Olympic stocks, retail investors, valuation, fundamentals, comovement, categorization, investor sentiment, investor recognition, common factor, Stay-at-Home, Meme. |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3881333 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis |
Social transmission bias and investor behavior
| Authors | Han, Hirshleifer, Walden |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We offer a new social approach to investment decision making and asset prices. Investors discuss their strategies and convert others to their strategies with a probability that increases in investment returns. The conversion rate is shown to be convex in realized returns. Unconditionally, active strategies (e.g., high variance and skewness) dominate, although investors have no inherent preference for these characteristics. The model has strong predictions for how the adoption of active strategies depends on investors's social networks. In contrast with nonsocial approaches, sociability, self-enhancing transmission, and other features of the communication process determine the popularity and pricing of active investment strategies. |
| URL | https://doi.org/10.1017/S0022109021000077 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Social Transmission Biases | Theory |
Social networks and market reactions to earnings news
| Authors | Hirshleifer, Peng, Wang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using social network data from Facebook, we show that earnings announcements made by firms located in counties with higher investor social network centrality attract more attention from both retail and institutional investors. For such firms, the immediate price and volume reactions to earnings announcements are stronger, and post-announcement drift is weaker. Such firms have lower post-announcement persistence of return volatility but higher persistence in investor attention and trading volume. These effects are stronger for small firms, firms with poor analyst and media coverage, and for stocks with salient returns. Our evidence suggests a dual role of social networks-they facilitate the incorporation of public information into prices, but also trigger persistent excessive trading. |
| Keywords | Social networks, investor attention, earnings announcement, information diffusion, disagreement |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3824022 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
The rise of Reddit: how social media affects retail investors and short-sellersâ roles in price discovery
| Authors | Hu, Jones, Zhang, Zhang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using 2020-2021 data from social media platform Reddit, we examine connections among stock prices, retail trading, short-selling and social media activity. Higher Reddit traffic, more positive tone, and higher Reddit connectedness predict higher returns, greater and more positive retail order flow, and lower shorting flows the next day. Social media information content is distinct from retail order and shorting information content. Higher Reddit traffic, more positive tone, more disagreement and higher Reddit connectedness increase shorting flowâs information content. Robinhood 50 stocks are more affected by social media activity, with stronger links among retail order flow, shorting flows and future returns. |
| Keywords | social media, short selling, intraday trading, retail investors |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3807655&dgcid=ejournal_htmlemail_behavioral:experimental:finance:(editor%27s:choice):ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Social Network Structure |
The rate of communication
| Authors | Huang, Hwang, Lou |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We study the transmission of financial news and opinions through social interactions among retail investors in the United States. We identify a series of plausibly exogenous shocks, which cause "treated investors" to trade abnormally. We then trace the "contagion" of abnormal trading activity from the treated investors to their neighbors and their neighbors' neighbors. Coupled with methodology drawn from epidemiology, our setting allows us to estimate the rate of communication and how it varies with the characteristics of the underlying investor population. |
| Keywords | Social interaction, investor communication, information diffusion |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X21001276?via%3Dihub |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
Friends with bankruptcy protection benefits
| Authors | Kleiner, Stoffman, Yonker |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We show information spillovers limit the effectiveness of targeted debt relief programs. We study individuals who learn about the likelihood of debt relief from the recent experiences of workplace peers filing for bankruptcy protection. Peers granted bankruptcy can discharge debts, while peers facing dismissal lose all protections. Exploiting the random assignment of judges to bankruptcy cases, we determine that individuals with a "dismissed peer" are significantly less likely to file for bankruptcy or enter foreclosure. We highlight a novel channel relating social networks to household finances and identify additional costs of granting individual debt relief imposed on lenders. |
| Keywords | Debt relief, personal bankruptcy, foreclosure, peer effects, social networks, bankruptcy juadges, random assignment |
| URL | https://doi.org/10.1016/j.jfineco.2020.08.003 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
Social finance
| Authors | Kuchler, Stroebel |
| Journal | Annual Review of Financial Economics |
| Year | 2021 |
| Type | Published Paper | Literature Review Paper |
| Abstract | We review an empirical literature that studies the role of social interactions in driving economic and financial decision-making. We first summarize recent work that documents an important role of social interactions in explaining household decisions in housing and mortgage markets. This evidence shows, for example, that there are large peer effects in mortgage refinancing decisions and that individuals's beliefs about the attractiveness of housing market investments are affected by the recent house price experiences of their friends. We also summarize recent work showing that social interactions affect the stock market investments of both retail and professional investors as well as household financial decisions such as retirement savings, borrowing, and default. Along the way, we describe a number of easily accessible recent data sets for the study of social interactions in finance, including the Social Connectedness Index, which measures the frequency of Facebook friendship links across geographies. We conclude by outlining several promising directions for further research in the field of social finance. |
| Keywords | Social networks, peer effects, financial decision-making, social dynamics, belief contagion |
| URL | https://doi.org/10.1146/annurev-financial-101320-062446 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
The trading response of individual investors to local bankruptcies
| Authors | Laudenbach, Loos, Pirschel, Wohlfart |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We examine how adverse local experiences that are uninformative of future returns affect households' investment behavior in the short term. Using data from a German online brokerage and a survey we show that retail investors sharply reduce risk taking in response to nearby firm bankruptcies. Adjustments in risk taking occur through immediate and transitory increases in trading, and seem to work through more pessimistic expectations about aggregate stock returns and increased risk aversion. Changes in background risks or wealth effects cannot explain our findings. Extrapolation from local experiences to aggregate expectations is inconsistent with optimal use of full or limited information. |
| Keywords | Individual investors, risk-taking, trading, experiences |
| URL | https://doi.org/10.1016/j.jfineco.2021.06.033 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Superstition and farmers' life insurance spending
| Authors | Liu, Zhang, Chen, Yang |
| Journal | Economics Letters |
| Year | 2021 |
| Type | Published Paper |
| Abstract | Superstition is prevalent in rural areas, yet very few studies examine whether it affects rural households' economic decisions. In this paper, we investigate the impact of "zodiac year" superstition on Chinese rural households' life insurance spending. We find a statistically significant 18.5% increase in life insurance expenditure during the head's zodiac year. Such a boost is only significant in the zodiac year and does not exist in non-zodiac years. Our study provides novel evidence that rural households would hedge "bad luck" by self-insurance when bearing superstitious beliefs. |
| Keywords | Superstition, insurance, rural household |
| URL | https://doi.org/10.1016/j.econlet.2021.109975 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Game stops not yet. Investors' behavior in the post-pandemic times
| Authors | Milovidov |
| Year | 2021 |
| Type | Working Paper | Literature Review Paper |
| Abstract | The first twenty years of the 21st century were a period of transformation and change in the development models of the financial market. One of the strongest in the history world financial crises of 2007-2008 ended the post-deregulation model. Transition to the new financial market model turned out to be largely unpredictable, complex, and spontaneous, unlike the previous periods, without the purposeful participation of state regulators. An objective but random reason for this course of events was the COVID-19 pandemic. Pandemic has distorted the effect of the loose monetary policy, which caused building the grounds for a new financial market model. The post-pandemic model of the financial market is still in the early stages of formation, and it is too early to talk about all its properties and elements. However, as seen from current events and processes, the essential factor of the new financial market model formation is a gamification of investors' behavior. The author believes this behavioral model requires much more attention of researches than that in nowadays scientific literature. |
| Keywords | Financial market, investors' behavior, household finance, monetary policy, personal savings, post-pandemic, emotional communities, wallstreetbets, attention-induced trading, gamification |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3905795 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Social Network Structure |
Game on: Social networks and markets
| Authors | Pedersen |
| Year | 2021 |
| Type | Working Paper |
| Abstract | I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade assets over time: naive investors who learn via a social network, "fanatics" possibly spreading fake news, rational short-term investors, and long-term investors. I show that fanatic and rational views dominate over time due to echo-chamber effects, and their relative importance depends on their following by influencers. Securities markets exhibit social network spillovers, large effects of influencers and thought leaders, bubbles, bursts of high volume, price momentum, fundamental momentum, and reversal. The model sheds new light on the GameStop event, historical bubbles, and asset markets more generally. |
| Keywords | Echo chambers, networks, influencers, fake news, social media, bubbles, asset prices, belief formation |
| URL | http://dx.doi.org/10.2139/ssrn.3794616 |
| Tags | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Social ties and peer effects in crowdfunding markets
| Authors | Peng, Zhang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We identify the crucial role social networks play in crowdfunding markets. Investors are 50% more likely to fund projects that their social network peers support and are 11.2% more likely to fund projects from regions to which they have strong social ties, given a one standard deviation change in the variables. Peer effects complement platform design choices and the effect of social ties, and social ties transmit information about economic conditions in project locations. Further, the investor-level effects aggregate and affect project funding successes. Our findings suggest that social networks increase investor awareness, disseminate information, and have real impacts on capital allocations. |
| Keywords | Social network, peer effects, social learning, fintech, crowdfunding, platform design |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3747375 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure |
Partisan return gap: The polarized stock market in the time of a pandemic
| Authors | Sheng, Sun, Wang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using two proxies for investors' political affiliation, we document sharp differences in stock returns between firms likely dominated by Democratic investors (blue stocks) and those dominated by Republican investors (red stocks) during the COVID pandemic. Red stocks have 20 basis points higher risk-adjusted returns than blue stocks on COVID news days (Partisan Return Gap). Lockdown policies, COVID cases, industry and firm fundamentals only explain at most 25% of the return gap. Polarized political beliefs about COVID, revealed through people's social distancing behaviors and their Stock-Twits, contribute to about 40% of the return gap beyond the fundamental channel. Our paper provides partisanship as a novel aspect in understanding abnormal stock returns during the pandemic. |
| Keywords | Partisanship, stock returns, pandemic, COVID-19, political polarization, political finance, social finance |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3809575 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Social Network Structure |