COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 794 "Survey Evidence on Diffusion of Interest Among Institutional Investors" Robert J. Shiller and John Pound May 1986 Contagion or epidemic models of financial markets are proposed in which interest in or
attention to individual stocks is spread by word of mouth. The models give alternative
interpretations of the random walk character of stock prices. A questionnaire survey of
institutional investors was undertaken to ascertain the relevance of such models.
Questions elicited what fraction of these investors were unsystematic and allowed
themselves to be influenced by word-of-mouth communications or other salient stimuli.
Rough indications of the infection rate and removal rate were produced. Investors in
stocks whose price had recently increased dramatically to a high P/E ratio were contrasted
with a control group of investors. |
