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Survey Evidence on Diffusion of Interest Among Institutional Investors

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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.

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File URL: http://cowles.econ.yale.edu/P/cd/d07b/d0794.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 794.

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Length: 26 pages
Date of creation: May 1986
Date of revision:
Publication status: Published in Journal of Economic Behavior and Organization (August 1989), 12(1): 47-66
Handle: RePEc:cwl:cwldpp:794

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Related research

Keywords: financial markets; stocks; word-of-mouth; random walk;

References

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  1. Reinganum, Marc R., 1981. "Misspecification of capital asset pricing : Empirical anomalies based on earnings' yields and market values," Journal of Financial Economics, Elsevier, vol. 9(1), pages 19-46, March.
  2. Richard P. Bagozzi & Alvin J. Silk, 1983. "Recall, Recognition, and the Measurement of Memory for Print Advertisements," Marketing Science, INFORMS, vol. 2(2), pages 95-134.
  3. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Robert Shiller Uses Epidemic Models To Understand Bubbles !!
    by Miguel in Simoleon Sense on 2010-09-04 16:36:26
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Cited by:
  1. Guillermo A. Calvo & Enrique G. Mendoza, 1999. "Regional Contagion and the Globalization of Securities Markets," NBER Working Papers 7153, National Bureau of Economic Research, Inc.
  2. Robert J. Shiller, 2001. "Bubbles, Human Judgment, and Expert Opinion," Cowles Foundation Discussion Papers 1303, Cowles Foundation for Research in Economics, Yale University.

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