Wall Street vs. Main Street: An Evaluation of Probabilities

Robin L. Lumsdaine and Rogier J.D. Potter van Loon

No 19103, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C58 D84 G02 G13 (search for similar items in EconPapers)
Date: 2013-06
Note: AG AP ED IFM
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Citations: View citations in EconPapers (3)

Published as "Do Survey Probabilities Match Financial Market Beliefs?", Journal of Behavioral Finance, 19(2), 209-220, 2018.

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