Working Paper: NBER ID: w1851
Authors: Robert J. Shiller; John Pound
Abstract: Contagion or epidemic models of financial markets are proposed in which interest in or attention to individual stocks is spread by word of mouth. The models give alternative interpretations of the random walk character of stock prices. A questionnaire survey of institutional investors was undertaken to ascertain the relevance of such models. Questions elicited what fraction of these investors were unsystematic and allowed themselves to be influenced by word-of-mouth communications or other salient stimuli. Rough indications of the infection rate and removal rate were produced. Investors in stocks whose price had recently increased dramatically to a high P/E ratio were contrasted with a control group of investors.
Keywords: contagion models; institutional investors; financial markets; investor behavior
JEL Codes: G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interpersonal communication (L96) | interest in stocks (G12) |
| contagion models (C59) | interest in stocks (G12) |
| word-of-mouth communications (L96) | investment behavior (G11) |
| experimental group (C90) | enthusiasm and optimism (D84) |
| contagion effects (E44) | predictability of stock returns (G17) |
| infection rates (I14) | interest in stocks (G12) |