Thought and Behavior Contagion in Capital Markets

Hirshleifer, David; Teoh, Siew Hong

doi:10.1016/b978-012374258-2.50005-1

Cited by 86 publications

(61 citation statements)

References 286 publications

(255 reference statements)

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“…Our results may complement our understanding of herding behavior and behavioral contagion in financial markets (Hirshleifer and Teoh 2009). In a recent experimental study, Goeree and Yariv (2006) brought subjects into a situation with uncertain probabilities similar to the ones studied in our paper, and then let them choose between an informative private signal, and an uninformative social signal.…”

Section: Discussionmentioning

confidence: 58%

Shunning uncertainty: The neglect of learning opportunities

Trautmann¹,

Zeckhauser²

2013

Games and Economic Behavior

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Financial, managerial, and medical decisions often involve alternatives whose possible outcomes have uncertain probabilities. In contrast to alternatives whose probabilities are known, these uncertain alternatives offer the benefits of learning. In repeat-choice situations, such learning brings value. If probabilities appear favorable (unfavorable), a choice can be repeated (avoided). In a series of experiments involving bets on the colors of poker chips drawn from bags, decision makers often prove to be blind to the learning opportunities offered by uncertain probabilities. Such decision makers violate rational decision making and forgo significant expected payoffs when they shun uncertain alternatives in favor of risky ones. Worse, when information is revealed, many make choices contrary to learning. A range of factors explain these violations. The results indicate that priming with optimal strategies offers little improvement.

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Section: Discussionmentioning

confidence: 58%

Shunning uncertainty: The neglect of learning opportunities

Trautmann¹,

Zeckhauser²

2013

Games and Economic Behavior

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“…Similarly, other fund managers might be perceived to have a better ability to process available pieces of information, 5 See e.g. Bikhchandani and Sharma (2000) and Hirshleifer and Teoh (2003) for a survey of theoretical and empirical research on herd behaviour on nancial markets or Hirshleifer and Teoh (2008) for a more recent survey about general social in uence on nancial markets.…”

Section: In His Famous Bookmentioning

confidence: 99%

“…social in uence among mutual fund managers (see e.g. Hirshleifer and Teoh (2008) for a recent survey). Social in uence exclusively refers to the situation where fund managers directly inuence each other.…”

mentioning

confidence: 99%

Fluctuations of Social Influence: Evidence from the Behaviour of Mutual Fund Managers During the Economic Crisis 2008/09

König

2012

SSRN Journal

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In this paper, I analyse the reciprocal social in uence on investment decisions within an international group of roughly 2,000 mutual fund managers who invested in companies in the DAX30. Using a robust estimation procedure, I provide empirical evidence that the average fund manager puts 0.69% more portfolio weight on a particular stock, if his peers on average assign a weight to the corresponding position which is 1% higher compared to other stocks in the portfolio. The dynamics of this in uence on the choice of portfolio weights suggest that fund managers adjust their behaviour according to the prevailing market situation and are more strongly in uenced by others in times of an economic downturn. Analysing the working locations of the fund managers, I conclude that more than 90% of the magnitude of in uence stems from the social learning. While this form of in uence varies much over time, the magnitude of in uence resulting from the exchange of opinion is more or less constant. 1 This corresponds to one third of the global investable equity opportunity set. 2 Hence, mutual fund managers' overall investment behaviour might have a considerable impact on the dynamics of stock prices, as similar investment decisions might drive prices into a speci c direction. In this context, it is important to point out how analogous decisions arise. Mutual fund managers are institutional investors with similar investment strategies, such that it is likely that they independently make the same decisions. However, they might also in uence each other such that subsequently investment decisions are aligned.There is a large body of nancial literature that provides empirical evidence in favour of the latter explanation, i.e. social in uence among mutual fund managers (see e.g. Hirshleifer and Teoh (2008) for a recent survey). Social in uence exclusively refers to the situation where fund managers directly inuence each other. This is opposed to indirect in uence that for instance arises via market price mechanisms. The empirical literature on social inuence among mutual fund managers can be divided into two main strands depending on how fund managers learn about other fund managers' investment decisions. Observational in uence, also known as social learning, is generally stated by the strand of literature that deals with herding behaviour (see e.g. Lakonishok et al. (1992), Wermers (1999), Walter and Weber (2006) 111 exchange of opinion, also known as word-of-mouth e ect 3 (see e.g. Shiller and Pound (1989), Hong et al. (2005) and Pareek (2011)).,With this paper, I contribute to both strands of literature by empirically determining the whole magnitude of social in uence among fund managers and dividing it into observational in uence and in uence from the exchange of opinion afterwards. Irrespective of the way the in uence takes place, I allow it to be heterogeneous among fund managers. This means I do not assume that a single fund manager is equally in uenced by all other fund managers.As a major contribution, I relate both observatio...

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“…The effect of herding -defined as convergence of behavior brought about by direct or indirect social interactions without influence of any central coordination -occurs when the perceptions/behavior of investors are influenced by each other (e.g. Hirshleifer & Teoh, 2009;Michael & Otterbacher, 2014). Empirically, the herding behavior has been widely supported in the setting of capital markets (Note 3).…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Twitter, Investor Sentiment and Capital Markets: What Do We Know?

Ali¹

2018

IJEF

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Nowadays, the social media play a central role not only in "de-asymmetrizing" the information between firms and investors but also in influencing the emotional response to this information. The social media have provided firms with the opportunity to construct their image and stimulate significant attention and positive emotional responses (i.e. celebrity firm). Investors also become no longer passive participants; they can now communicate, re-tweet, comment, mention, react to information and express their sentiment/views. Theoretically, this should exert a positive impact on information diffusion and so the market efficiency. However, as the social media also significantly influence the public mood and emotional response to any new information/news, several behavioral explanations contradicting with the concept of market efficiency (e.g. investor sentiment and herding behavior) become more reasonable. The study aims at providing a literature review and synthesis of research on the impact of social media sentiment in the context of capital markets, scrutinizing the theoretical understanding of this impact, underlining the methodological challenges related to extracting the sentiment, and reviewing the main empirical findings on the impact in the context of Twitter and StockTwits, which will enable researchers to evaluate and classify existing studies, obtain useful insight into the theoretical understanding of the impact of social media sentiment, hence spurring further theoretical and empirical research.

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Thought and Behavior Contagion in Capital Markets

Cited by 86 publications

References 286 publications

Shunning uncertainty: The neglect of learning opportunities

Shunning uncertainty: The neglect of learning opportunities

Fluctuations of Social Influence: Evidence from the Behaviour of Mutual Fund Managers During the Economic Crisis 2008/09

Twitter, Investor Sentiment and Capital Markets: What Do We Know?

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