The Geography of Beliefs

Add to your list(s) Download to your calendar using vCal

• Johan Walden (Haas School of Business University of California at Berkeley)
• Thursday 14 November 2019, 13:00-14:00
• KH107, Cambridge Judge Business School.

If you have a question about this talk, please contact CERF/CF Admin.

The Geography of Beliefs

Authors: Harjoat Bhamra (Imperial College Business School), Raman Uppal (Edhec Business School), and Johan Walden (University of Lausanne, and UC Berkeley)

Abstract:

Empirical evidence shows that beliefs of households deviate from rational expectations and instead may be influenced by characteristics such as place of residence, culture, and socioeconomic status, which can be modeled using network theory. We develop a model where a household’s beliefs about stock returns are an \emph{endogenous} outcome of its location in a bipartite network of households and firms. We use this model to establish the relation between households’ beliefs about stock returns, which are unobservable, and the portfolio weights allocated to these stocks by these households. We use Finnish data for 126 stocks and the portfolio holdings of 885,868 households to estimate our model and find that distance in the network has a statistically and economically significant effect on the beliefs of households. Our estimates show that agents are connected to firms within a radius of about 145 miles from where they live, and geography has a strong effect on beliefs: a one standard deviation decrease in an agent’s distance to a firm’s headquarters predicts an increase in portfolio holdings by 165%. Our work provides microfoundations for the bias toward local stocks documented empirically.

This talk is part of the Cambridge Finance Workshop Series series.

This talk is included in these lists:

• All Talks (aka the CURE list)
• CERF and CF Events
• Cambridge Judge Business School
• Interested Talks
• KH107, Cambridge Judge Business School

Note that ex-directory lists are not shown.