LUNCHEON 12:00 p.m.; PROGRAM 12:30 p.m.
Hirshleifer has published more than 50 papers, several of which have won research awards, including the Smith Breeden Award for outstanding paper in the Journal of Finance. He helped develop the field of behavioral finance, with an emphasis on the psychological basis for market under - and overreactions, and has also worked in the areas of corporate finance and investments. Some of his recent research has been on psychology in firms and markets, social transmission of investment ideas and behavior, and the effect of emotions on stock prices. He research also covers such topics as risk management, determinants of futures prices, social interactions and markets, fads and fashions in economic decisions, and how psychological bias affects political and regulatory decisions.
The study of social interactions is the greatest remaining underexplored continent in economics and finance. Some basic steps forward have been the empirical documentation that people are influenced by the behavior of others in their investment decisions, and theoretical modeling of herding/cascading and how information and behaviors spread along social networks. A crucial new direction is to explore the transmission biases that cause some ideas to spread at the expense of others, and thereby to affect economic decisions. This leads to such questions as: What are the characteristics that help an idea win in the competition for investor attention? How do transmission biases affect savings and risk-taking? How do religion and moral attitudes affect financial decision-making? What causes certain speculative investments, such as a hot tech-IPO, spread through the population like wildfire, and for interest to cool? What causes more general financial ideologies such as value versus growth investing, to evolve and spread? What causes long-run shifts in the popularity of different money management vehicles, such as mutual funds, ETFs, and hedge funds? Modeling the social transmission of investing ideas promises to address such questions, and to explain a number of stylized facts about investor behavior and security prices. Furthermore, lags in social transmission promise to provide a microfoundation for understanding fluctuations in investor sentiment, and market bubbles and crashes. Social finance therefore promises to be a worthy descendant and successor to behavioral finance.
David Hirshleifer's visit is sponsored by the Financial Economics Institute.