We model visibility bias in the social transmission of consumption behavior. When consumption is more salient than non-consumption, people perceive that others are consuming heavily, and infer that future prospects are favorable. This increases aggregate consumption in a positive feedback loop....

We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naïve portfolio diversification--NPD) or engage in naïve buying diversification (NBD)--equally balancing values in same-day purchases of multiple assets. We find NBD in purchases of...

Identifying stock connections by shared analyst coverage, we find that a connected-stock (CS) momentum factor generates a monthly alpha of 1.68% (t = 9.67). In spanning regressions, the alphas of industry, geographic, customer, customer/supplier industry, single- to multi-segment, and technology...

Biased information about the payoffs received by others can drive innovation, risk-taking, and investment booms. We study this cultural phenomenon using a model based on two premises. The first premise is a tendency for large successes, and the actions that lead to them, to be more salient to...

The thoughts and behaviors of financial market participants depend upon adopted cultural traits, including information signals, beliefs, strategies, and folk economic models. Financial traits compete to survive in the human population, and are modified in the process of being transmitted from...

We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the forward rate than in the spot rate. Thus,...