STOCK MARKET CRASH AND EXPECTATIONS OF AMERICAN HOUSEHOLDS.

TitleSTOCK MARKET CRASH AND EXPECTATIONS OF AMERICAN HOUSEHOLDS.
Publication TypeJournal Article
Year of Publication2011
AuthorsHudomiet, P, Kezdi, G, Willis, RJ
JournalJ Appl Econ
Volume26
Issue3
Pagination393-415
Date Published2011
ISSN Number1514-0326
Call Numbernewpubs20100921_Hudomiet.pdf
Abstract

<p>This paper utilizes data on subjective probabilities to study the impact of the stock market crash of 2008 on households' expectations about the returns on the stock market index. We use data from the Health and Retirement Study that was fielded in February 2008 through February 2009. The effect of the crash is identified from the date of the interview, which is shown to be exogenous to previous stock market expectations. We estimate the effect of the crash on the population average of expected returns, the population average of the uncertainty about returns (subjective standard deviation), and the cross-sectional heterogeneity in expected returns (disagreement). We show estimates from simple reduced-form regressions on probability answers as well as from a more structural model that focuses on the parameters of interest and separates survey noise from relevant heterogeneity. We find a temporary increase in the population average of expectations and uncertainty right after the crash. The effect on cross-sectional heterogeneity is more significant and longer lasting, which implies substantial long-term increase in disagreement. The increase in disagreement is larger among the stockholders, the more informed, and those with higher cognitive capacity, and disagreement co-moves with trading volume and volatility in the market.</p>

DOI10.1002/jae.1226
User Guide Notes

http://www.ncbi.nlm.nih.gov/pubmed/21547244?dopt=Abstract

Endnote Keywords

Stock Market/expectations/Asset accumulation

Endnote ID

23460

Alternate JournalJ Appl Econ
Citation Key7559
PubMed ID21547244
PubMed Central IDPMC3086799
Grant ListP01 AG026571 / AG / NIA NIH HHS / United States
R03 AG029469 / AG / NIA NIH HHS / United States
U01 AG009740 / AG / NIA NIH HHS / United States
R24 HD041028 / HD / NICHD NIH HHS / United States
P01 AG026571-02 / AG / NIA NIH HHS / United States