Stock market crash and expectations of American households

Archived Abstract of Former PSC Researcher

Hudomiet, Peter, Gabor Kezdi, and Robert Willis. 2011. "Stock market crash and expectations of American households." Journal of Applied Econometrics, 26(3): 393-415.

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. Copyright © 2010 John Wiley & Sons, Ltd.

10.1002/jae.1226

PMCID: PMC3086799. (Pub Med Central)

Country of focus: United States of America.

Browse | Search | Books

PSC In The News

RSS Feed icon

Barbara Anderson comments in NYT on Federal Law that protects citizenship status data from distribution by the Census Bureau

Anderson discusses impact of Administration's ongoing pursuit of Citizenship information around the 2020 Census with Michigan Radio

Burgard correlates job insecurity higher with negative overall health and depression than the impact of job loss and regain

More News

Highlights

Colter Mitchell receives Presidential Early Career Award for Scientists and Engineers (PECASE)

Frey receives 2019 ASA Distinguished Contributions to Teaching Award

More Highlights


Connect with PSC follow PSC on Twitter Like PSC on Facebook