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Wall Street vs. Main Street: An Evaluation of Probabilities

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  • Robin L. Lumsdaine
  • Rogier J.D. Potter van Loon
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    Abstract

    This paper challenges recent conventional wisdom of a divide between Main Street (the average American consumer) and Wall Street (financial market participants). The views of survey respondents regarding the likelihood of stock index returns exceeding specific thresholds are compared to market views indicated by index options with strikes at analogous thresholds. The econometric specification explicitly addresses some important impediments to using elicited probabilities from survey data. We confirm that Main Street views track Wall Street views, although the association is not one-for one. We find a closer association for those demonstrating a better understanding of the laws of probability.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19103.

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    Date of creation: Jun 2013
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    Handle: RePEc:nbr:nberwo:19103

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