Thought and Behavior Contagion in Capital Markets

David Hirshleifer and Siew Hong Teoh

MPRA Paper from University Library of Munich, Germany

Abstract: Prevailing models of capital markets capture a limited form of social influence and information transmission, in which the beliefs and behavior of an investor affects others only through market price, information transmission and processing is simple (without thoughts and feelings), and there is no localization in the influence of an investor on others. In reality, individuals often process verbal arguments obtained in conversation or from media presentations, and observe the behavior of others. We review here evidence concerning how these activities cause beliefs and behaviors to spread, affect financial decisions, and affect market prices; and theoretical models of social influence and its effects on capital markets. Social influence is central to how information and investor sentiment are transmitted, so thought and behavior contagion should be incorporated into the theory of capital markets.

Keywords: capital markets; thought contagion; behavioral contagion; herd behavior; information cascades; social learning; investor psychology; accounting regulation; disclosure policy; behavioral finance; market efficiency; popular models; memes (search for similar items in EconPapers)
JEL-codes: D83 D85 G0 M41 Z13 (search for similar items in EconPapers)
Date: 2008-06-16
New Economics Papers: this item is included in nep-acc and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Thought and Behavior Contagion in Capital Markets (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9164

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