Institutional Affiliation: Baruch College, City Univeristy of New York
|Social Proximity to Capital: Implications for Investors and Firms|
with , , , : w27299
We use social network data from Facebook to show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties. This effect of social proximity on investment behavior is distinct from the effect of geographic proximity. Social connections have the largest influence on investments of small investors with concentrated holdings as well as on investments in firms with a low market capitalization and little analyst coverage. We also find that the response of investment decisions to social connectedness affects equilibrium capital market outcomes: firms in locations with stronger social ties to places with substantial institutional capital have higher institutional ownership, higher valuations, and higher liquidity. These effects of social p...
|Investor Attention: Overconfidence and Category Learning|
with : w11400
Motivated by psychological evidence that attention is a scarce cognitive resource, we model investors' attention allocation in learning and study the effects of this on asset-price dynamics. We show that limited investor attention leads to ``category-learning" behavior, i.e., investors tend to process more market and sector-wide information than firm-specific information. This endogenous structure of information, when combined with investor overconfidence, generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models. Our model also demonstrates new cross-sectional implications for return predictability.
Published: Peng, Lin and Wei Xiong. "Investor Attention, Overconfidence And Category Learning," Journal of Financial Economics, 2006, v80(3,Jun), 563-602. citation courtesy of