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Investor Behavior in the 1987-10 Stock Market Crash: Survey Evidence

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Abstract

Questionnaires were sent out at the time of the October 19, 1987 stock market crash to both individual and institutional investors inquiring about their behavior during the crash. Nearly 1000 responses were received. The survey results show that: 1. No news story or rumor appearing on the 19th or over the preceding weekend was responsible for investor behavior, 2. Investors' importance rating of news appearing over the preceding week showed only a slight relation to decisions to buy or sell, 3. There was a great deal of investor talk and anxiety around October 19, much more than suggested by the volume of trade, 4. Many investors thought that they could predict the market, 5. Both buyers and sellers generally thought before the crash that the market was overvalued, 6. Most investors interpreted the crash as due to the psychology of other investors, 7. Many investors were influenced by technical analysis considerations, 8. Portfolio insurance is only a small part of predetermined stop-loss behavior, and 9. Some investors changed their investment strategy before the crash.

Suggested Citation

  • Robert J. Shiller, 1987. "Investor Behavior in the 1987-10 Stock Market Crash: Survey Evidence," Cowles Foundation Discussion Papers 853, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:853
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    References listed on IDEAS

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    1. Mankiw, N Gregory & Romer, David & Shapiro, Matthew D, 1985. "An Unbiased Reexamination of Stock Market Volatility," Journal of Finance, American Finance Association, vol. 40(3), pages 677-687, July.
    2. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    3. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
    4. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-574, May.
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    Cited by:

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    2. Bolt, Wilko & Demertzis, Maria & Diks, Cees & Hommes, Cars & Leij, Marco van der, 2019. "Identifying booms and busts in house prices under heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 234-259.
    3. Ma, Rong & Zhang, Yin & Li, Honggang, 2017. "Traders’ behavioral coupling and market phase transition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 486(C), pages 618-627.
    4. Lu, Shan & Zhao, Jichang & Wang, Huiwen & Ren, Ruoen, 2018. "Herding boosts too-connected-to-fail risk in stock market of China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 945-964.
    5. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs, Bank of Finland, number 2012_047.
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    7. Shan Lu & Jichang Zhao & Huiwen Wang, 2018. "The Power of Trading Polarity: Evidence from China Stock Market Crash," Papers 1802.01143, arXiv.org.
    8. Chiu, Junmao & Chung, Huimin & Ho, Keng-Yu & Wu, Chih-Chiang, 2018. "Investor sentiment and evaporating liquidity during the financial crisis," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 21-36.
    9. André Orléan, 1992. "Contagion des opinions et fonctionnement des marchés financiers," Revue Économique, Programme National Persée, vol. 43(4), pages 685-698.
    10. Bolt, Wilko & Demertzis, Maria & Diks, Cees & Hommes, Cars & Leij, Marco van der, 2019. "Identifying booms and busts in house prices under heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 234-259.
    11. Pascual-Ezama, David & Paredes, Mercedes Rodríguez & Sanchez-Martín, María-del-Pilar & de Liaño, Beatriz Gil-Gómez, 2018. "Shorter and easier is more useful: A longitudinal analysis of how financial report enforcement affects individual investors," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 74(C), pages 29-37.
    12. Yang, Xiaolan & Zhu, Yu & Cheng, Teng Yuan, 2020. "How the individual investors took on big data: The effect of panic from the internet stock message boards on stock price crash," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
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    14. R. Sverchkov & K. Sonin., 2014. "Financial Markets Efficiency (Nobel Memorial Prize in Economics 2013)," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 1.
    15. Reddy, K.S. & Xie, En, 2017. "Cross-border mergers and acquisitions by oil and gas multinational enterprises: Geography-based view of energy strategy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 961-980.

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