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Crash Beliefs from Investor Surveys

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Crash Beliefs from Investor Surveys


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The odds of a one-day stock market crash are relatively low, but not according to investors.

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One-day stock market crashes, such as those of October 28, 1929, or October 19, 1987, are historically rare. Interestingly, however, investor perceptions of the likelihood of such an event happening are far higher. Economists William N. Goetzmann, Dasol Kim and Robert J. Shiller seek to explain this discrepancy through an analysis of survey data that suggests the media play a powerful role in forming those opinions. The implications of their findings are important because these beliefs affect investors’ market involvement, the premiums they’ll pay for stocks and their risk tolerances. getAbstract recommends their insightful and thought-provoking report to investors and financial professionals interested in understanding the behavioral drivers of market volatility.


October 28, 1929, and October 19, 1987, are dates indelibly burned into the psyches of equity investors. These crashes resulted in significant drops in value – 12.82% in 1929 and 22.61% in 1987 – but these types of collapses rarely occur. Historical data reveal that the probability of such a decline happening within a six-month period is 1%. However, nearly 10,000 individual and institutional investor responses to surveys over the 1989–2015 period demonstrate that the perceived probability of these events happening is far greater: On average...

About the Authors

William N. Goetzmann is a professor of finance at Yale University. Dasol Kim is an assistant professor of banking and finance at Case Western Reserve University. Robert J. Shiller is a Nobel Prize winner and a professor of economics at Yale University.

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