David Hirshleifer “Social Economics and Finance”

20131025-DavidHirshleiferFriday, November 8, 2013
Marian Miner Cook Athenaeum
Make Reservations: http://www.cmc.edu/mmca/cur_reserve.php
Security Pacific Dining Room
Lunch: 12:00 p.m. — Lunch Program: 12:20 p.m.

Prof. Hirshleifer is Merage Chair and Professor of Finance at the Merage School of Business, University of California-Irvine; he was previously on the faculties of Ohio State University, University of Michigan, and UCLA, and received his PhD from the University of Chicago. Since July 2011, he has served as the Executive Editor of a top academic journal, the Review of Financial Studies. He has also served as director of the American Finance Association and the Western Finance Association, and as associate editor of several other finance, economics, and strategy journals.

He has published more than 50 papers, several of which have won research awards, including the Smith Breeden Award for outstanding paper in the Journal of Finance. He helped develop the field of behavioral finance, with an emphasis on the psychological basis for market under- and overreactions, and has also worked in the areas of corporate finance and investments. Some of his recent research has been on psychology in firms and markets, social transmission of investment ideas and behavior, and the effect of emotions on stock prices. His research also covers such topics as risk management, determinants of futures prices, social interactions and markets, fads and fashions in economic decisions, and how psychological bias affects political and regulatory decisions.

He is co-author of Price Theory and Applications: Decisions, Markets, and Information, now in its seventh edition. Hirshleifer has presented papers and participated in discussions at many seminars and national and international conferences. He has also served as a consultant for securities and money management firms, and his research has been profiled in international print and broadcast media.

In his talk on “Social Economics and Finance,” he argues that the study of social interactions is the greatest remaining underexplored continent in economics and finance. Some basic steps forward have been the empirical documentation that people are influenced by the behavior of others in their investment decisions, and theoretical modeling of herding/cascading and how information and behaviors spread along social networks. A crucial new direction is to explore the transmission biases that cause some ideas to spread at the expense of others, and thereby to affect economic decisions. This leads to such questions as: What are the characteristics that help an idea win in the competition for investor attention? How do transmission biases affect savings and risk-taking? How do religion and moral attitudes affect financial decision-making? What causes certain speculative investments, such as a hot tech-IPO, spread through the population like wildfire, and for interest to cool? What causes more general financial ideologies such as value versus growth investing, to evolve and spread? What causes long-run shifts in the popularity of different money management vehicles, such as mutual funds, ETFs, and hedge funds? Modeling the social transmission of investing ideas promises to address such questions, and to explain a number of stylized facts about investor behavior and security prices. Furthermore, lags in social transmission promise to provide a microfoundation for understanding fluctuations in investor sentiment, and market bubbles and crashes. Social finance therefore promises to be a worthy descendant and successor to behavioral finance.

Professor Hirshleifer will present at the Marian Miner Cook Athenaeum as part of the Financial Economics Institute Speaker Series and as the Keynote Speaker for the Southern California Finance Conference.