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Contagious popular stories, stock market participation, and boom–bust cycles

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  • Mignot, Sarah
  • Westerhoff, Frank

Abstract

We study a model in which investors’ stock market participation hinges on contagious popular stories. Two opposing narratives exist that either advocate investing in the stock market or abstaining from it. Investors’ adherence to these narratives depends on the current behavior of the stock market and the social interactions among investors. For instance, stories that advocate investing in the stock market appear more plausible to investors during boom periods and when such behavior is common among peers. We identify different constellations in which waves of market entry and exit, driven by contagious popular stories, create boom–bust stock market dynamics.

Suggested Citation

  • Mignot, Sarah & Westerhoff, Frank, 2025. "Contagious popular stories, stock market participation, and boom–bust cycles," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 234(C), pages 459-471.
    • Handle: RePEc:eee:matcom:v:234:y:2025:i:c:p:459-471
    DOI: 10.1016/j.matcom.2025.03.014
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    Keywords

    Stock market participation; Contagious popular stories; Social interactions; Boom–bust dynamics; Stability and bifurcation analysis;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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