Seminar – Crash Beliefs from Investor Surveys

Professor William Goetzmann, Yale School of Management

Historical data suggest that the base rate for a severe, single-day stock market crash is relatively low. Surveys of individual and institutional investors, conducted regularly over a 26-year period in the United States, show that they assess the probability to be much higher. This study examines factors influencing investor responses and test the role of media influence, finding evidence consistent with an availability bias. Adverse market events made salient by financial press are associated with higher subjective crash probabilities. Exogenous shocks related to earthquakes are also associated with higher probabilities. Finally, subjective crash probabilities are negatively associated with mutual fund flows.

Speaker bio

William Goetzmann is Edwin J. Beinecke Professor of Finance at Yale University and a Research Fellow at the Centre for Endowment Asset Management, Cambridge Judge Business School.

William is an expert on a diverse range of investments. His past work includes studies of stock market predictability, hedge funds and survival biases in performance measurement. His current research focuses on alternative investing, factor investing, behavioural finance and the art market. William has written and co-authored a number of books, including Modern Portfolio Theory and Investment Analysis (2014), The Origins of Value: The Financial Innovations that Created Modern Capital Markets (2005), The Great Mirror of Folly: Finance, Culture and the Crash of 1720 (2013) and most recently, Money Changes Everything: How Finance Made Civilization Possible (2016). He teaches portfolio management, alternative investments, real estate and financial history at the Yale School of Management.