Regulators around the world, including the European Commission, are becoming increasingly interested in behavioural finance as a toolbox for better securities regulation. When securities laws are designed to prevent or minimise the effect of systematic investor bias, they may violate one of the...

This paper provides unique survey evidence on consumer awareness about deposit insurance. We find that knowledge on the eligibility for deposit insurance is limited, in particular when it concerns small banks. In addition, consumers generally expect an associated payback time that well exceeds...

We study stress tests as Bayesian persuasion within the fundamental bank run framework. This paper shows that the optimal disclosure policy depends on the liquidation cost of the long-term asset. In particular, when the liquidation cost is high, the optimal stress test partially discloses...

Using the mutual fund industry as a laboratory, we demonstrate theoretically and empirically that economic policy uncertainty an affect investment decisions through an information rather than real options channel. Specifically, we find that fund flow-performance sensitivity decreases in...

Analysis of required expected return disclosures by public pension funds in individual asset classes reveals a reliance on past performance in setting return expectations. These extrapolative expectations operate through the expected risk premium and occur across all risky asset classes. Pension...

We review theory and evidence relating to herd behaviour, payoff and reputational interactions, social learning, and informational cascades in capital markets. We offer a simple taxonomy of effects, and evaluate how alternative theories may help explain evidence on the behavior of investors,...

We study how the subjective beliefs about loan repayment on the side of liquidity-constrained banks affect the central bank's choice of collateral standards in its lending facilities. Optimism on the side of banks, entailing a higher collateral value of bank loans, can lead to excessive lending...

We review theory and evidence relating to herd behaviour, payoff and reputational interactions, social learning, and informational cascades in capital markets. We offer a simple taxonomy of effects, and evaluate how alternative theories may help explain evidence on the behavior of investors,...

Individual investors' beliefs (return expectations and risk perceptions) drive investment decisions, with larger updates of beliefs leading to more active trading, hurting performance. We examine how framing of past performance information affects investors' belief formation. In particular, we...

Prior research shows that investors with smaller belief updates trade less actively, which positively affects their return performance. We examine the effect of different default frames of presenting past return information on investors' belief updating. In particular, we analyze whether...