Presidential Address: Social Transmission Bias in Economics and Finance

Hirshleifer, David

doi:10.1111/jofi.12906

Cited by 191 publications

(41 citation statements)

References 125 publications

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“…For example, Heimer ( 2016 ) explains the disposition effect with social interaction and peer pressure. Hirshleifer ( 2020 ) introduced the term “social transmission bias” that offers an endogenous social explanation for “action booms, price bubbles, and swings in investor sentiment” in contrast to the exogenous explanation of most sentiment literature. One recent example is the “echo chambers” on the StockTwits social media platform analyzed by Cookson et al.…”

Section: The Effect Of Social Media Posts On Trading Activity and Ret...mentioning

confidence: 99%

“…While there is a breadth of literature showing that online activity can have an impact on the stock market (e.g., Antweiler and Frank 2004 , with one of the first studies of a large social media dataset, showing a positive relationship between daily Yahoo message board comments and trading volume), the mechanism behind this relationship is still a much-discussed topic. Alternative explanations about how Internet postings affect individual’s decision-making include i) effects of general sentiment and disagreement (e.g., Tetlock 2007 ; García 2013 ; Cookson and Niessner 2020 ; Guégan and Renault 2021 ), ii) more specific social interaction and social transmission bias (e.g., Hirshleifer 2020 ; Cookson et al. 2021 ) or iii) the effect of investor attention itself, independent of the impact on beliefs and sentiment (e.g., Barber and Odean 2008 ; Da et al.…”

Section: Introductionmentioning

confidence: 99%

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How online discussion board activity affects stock trading: the case of GameStop

Betzer

Harries

2022

Financ Mark Portf Manag

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In January 2021, the stock price of NASDAQ-listed GameStop Corporation surged more than twenty-fold for no discernible economic reason. Many observers attributed this broadly covered rise to retail investors, organizing themselves in Reddit’s WallStreetBets community. While Social Media-organized trading is not a new phenomenon, the magnitude of the resulting swings in the share price and surge in trading volume of GameStop is unprecedented. Using financial data, as well as an extensive dataset of Reddit posts, we provide empirical evidence for the relationship of Reddit posts and GameStop (retail) trading. While we find a significant and positive relationship between Reddit posts and various trading measures in the following 30-min window in accordance with an attention-based mechanism, our results offer no indication for the informativeness of Reddit posts and hint at a complex and probably nonlinear interdependence between Social-media and trading activity, preventing proof of a one-directional, causal effect.

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Section: The Effect Of Social Media Posts On Trading Activity and Ret...mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

How online discussion board activity affects stock trading: the case of GameStop

Betzer

Harries

2022

Financ Mark Portf Manag

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“…The dissemination of investment culture has also increased in recent decades. According to Shiller (1984) and Hirshleifer (2020), social dynamics, such as this, influence stock prices.…”

Section: Identifying Periods Of Market Overvaluation (Undervaluation)mentioning

confidence: 99%

Mean reversion in a price-earnings ratio and under / overvaluation in the Brazilian stock market

Amorim

Camargos

2021

Rev. contab. finanç.

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The market price-earnings ratios differ from those of each share. Despite allowing for several pertinent analyses, authors have rarely addressed these valuation ratios in the Brazilian context. We can use it to evaluate whether the stock market is overvalued (undervalued). In this article, we analyze the mean reversion in a price-earnings ratio based on Ibovespa and identify periods of overvaluation (undervaluation) in the Brazilian stock market. We considered the period from December 2004 to June 2018. Until then, there are no studies that sought to identify periods of overvaluation (undervaluation) in this market. In the analyses, we used non-linear econometric methods. We analyzed the mean reversion in the price-earnings ratio using a unit root test that incorporates a Fourier function in the deterministic term. We identified the periods of market overvaluation (undervaluation) through the regime probabilities obtained from a Markov Switching model, estimated with the price-earnings ratio. The results evidenced that the price-earnings ratio based on the Ibovespa has a non-linear trend and exhibits mean reversion. Thus, this valuation ratio should provide information on the future stock market returns, mostly when it is very dispersed in relation to historical standards. We identified four periods of market overvaluation interposed with five periods of market undervaluation. Mean reversion in the price-earnings ratio contraposes the Efficient Markets Hypothesis. There are no other applications of unit root tests with a Fourier function in the Brazilian context. Furthermore, adopting a Markov Switching model to identify periods of market overvaluation (undervaluation) consists of a methodological contribution. Investors can take advantage of the identification of these periods to establish investment strategies.

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“…The role of peer effects in decision making has been largely explored in many contexts, such as green product adoption, saving and borrowing decisions (Georgarakos et al, 2014;Agarwal et al, 2016;. It is well-documented in those studies that people can learn from their friends' or colleagues' experiences, and can be influenced by their choices (Hirshleifer, 2020). While peer impacts are believed to influence individuals' perceptions of climate change danger and proenvironmental action, little study has been conducted thus far.…”

Section: Limitations and Future Researchmentioning

confidence: 99%

The Roles of Mental Construal Level Theory in the Promotion of University Students' Pro-environmental Behaviors

2021

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Although green technological innovation is designed to combat climate change, recent research suggests that increased attention to technological innovations might decrease climate change risk perception and reduce pro-environmental behaviors due to the feeling of being assured, which is referred to as risk compensation behavior. Although there has been a growing interest in reducing the risk compensation effect related to climate change, the academic literature in this area is very limited. In this study, we propose a psychological intervention to mitigate a sample of university students' (N = 1,500) irrational response to green technological innovation so as to promote their pro-environmental behaviors. Our experiments identify students' mental construal level as an important psychological factor that, when combined with a proper message framing strategy of introducing new green technologies, can remedy their irrational response to new green technologies. Our findings suggest that highlighting the new technology as playing a preventive/promotional role related to climate change can mitigate risk compensation behavior and eventually promote students' pro-environmental behaviors when they are at a high/low mental construal level.

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Presidential Address: Social Transmission Bias in Economics and Finance

Cited by 191 publications

References 125 publications

How online discussion board activity affects stock trading: the case of GameStop

How online discussion board activity affects stock trading: the case of GameStop

Mean reversion in a price-earnings ratio and under / overvaluation in the Brazilian stock market

The Roles of Mental Construal Level Theory in the Promotion of University Students' Pro-environmental Behaviors

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