Stock Prices and Social Dynamics

Robert J. Shiller

Robert J. Shiller Sterling Professor of Economics - Yale University

Benjamin M. Friedman and

BMF

Benjamin M. Friedman Harvard University

Stanley Fischer

Stanley Fischer Vice Chairman of the Board of Governors of the Federal Reserve System

INVESTING in speculative assets is a social activity. Investors spend a substantial part of their leisure time discussing investments, reading about investments, or gossiping about others’ successes or failures in investing. It is thus plausible that investors’ behavior (and hence prices of speculative assets) would be influenced by social movements. Attitudes or fashions seem to fluctuate in many other popular topics of conversation, such as food, clothing, health, or politics. These fluctuations in attitude often occur widely in the population and often appear without any apparent logical reason. It is plausible that attitudes or fashions regarding investments would also change spontaneously or in arbitrary social reaction to some widely noted events.