NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Crash Beliefs From Investor Surveys

William N. Goetzmann, Dasol Kim, Robert J. Shiller

NBER Working Paper No. 22143
Issued in April 2016, Revised in December 2017
NBER Program(s):Asset Pricing

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. We examine 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.

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Document Object Identifier (DOI): 10.3386/w22143

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