Working Paper: NBER ID: w22065
Authors: Patrick Bayer; Kyle Mangum; James W. Roberts
Abstract: Historical anecdotes of new investors being drawn into a booming asset market, only to suffer when the market turns, abound. While the role of investor contagion in asset bubbles has been explored extensively in the theoretical literature, causal empirical evidence on the topic is virtually non-existent. This paper studies the recent boom and bust in the U.S. housing market, establishing that many novice investors entered the market as a direct result of observing investing activity of multiple forms in their own neighborhoods and that these “infected” investors performed poorly relative to other investors along several dimensions.
Keywords: Investor Contagion; Housing Bubble; Speculative Investing
JEL Codes: D40; D84; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in the number of investor neighbors within 0.10 miles (R23) | Increase in household's probability of entering the housing market (R21) |
| Presence of a flipped property within 0.10 miles (R33) | Increase in likelihood of investing (G11) |
| Neighborhood investor contagion (E44) | Contribution to speculative real estate investments (G19) |
| Infected investors (F65) | Underperform compared to non-infected investors (G41) |