Social Transmission Bias and Investor Behavior

Bing Han, David Hirshleifer and Johan Walden

No 24281, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We offer a new social approach to investment decision making and asset prices. Investors discuss their strategies and convert others to their strategies with a probability that increases in investment returns. The conversion rate is shown to be convex in realized returns. Unconditionally, active strategies (e.g., high variance and skewness) dominate, although investors have no inherent preference over these characteristics. The model has strong predictions for how adoption of active strategies depends on investors' social networks. In contrast with nonsocial approaches, sociability, self-enhancing transmission and other features of the communication process determine the popularity and pricing of active investment strategies.

JEL-codes: D03 D83 D85 D9 D91 G02 G11 G12 G14 G4 G41 (search for similar items in EconPapers)
Date: 2018-02
Note: AP
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Citations: View citations in EconPapers (7)

Published as Bing Han & David Hirshleifer & Johan Walden, 2022. "Social Transmission Bias and Investor Behavior," Journal of Financial and Quantitative Analysis, vol 57(1), pages 390-412.

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Journal Article: Social Transmission Bias and Investor Behavior (2022)
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