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Loonies Under Your Bed: Misdirected Attention and the Diluted Value of Stock Market Reports

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  • Lupia, Arthur
  • Grafstrom, Cassandra
  • Krupnikov, Yanna
  • Levine, Adam Seth
  • MacMillan, William
  • McGovern, Erin

Abstract

Many people pay attention to media reports of the US stock market’s performance. Using a data-based thought experiment, we cast the market’s recent highs and lows in an unusually unattractive light. The result matters because the economic and political factors that make it relevant are likely to continue. Using research in economics and psychology, we explain why so many investors and media reports are blind to the unattractive interpretation. To mitigate the blindness’ harmful consequences, we propose an alternate way of presenting stock market information. The alternative is easy to implement and can help citizens draw important inferences from the attention they already pay to financial reports. The word “loonies” refers to Canadian dollars, which play a key role in our analysis. Loonies are not causal of any of the key relationships in our analysis, but provide a useful device for making a broader point about key US asset values.

Suggested Citation

  • Lupia, Arthur & Grafstrom, Cassandra & Krupnikov, Yanna & Levine, Adam Seth & MacMillan, William & McGovern, Erin, 2007. "Loonies Under Your Bed: Misdirected Attention and the Diluted Value of Stock Market Reports," MPRA Paper 4912, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:4912
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    References listed on IDEAS

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    More about this item

    Keywords

    stock market; money illusion; fiscal policy; information; learning; exchange rate;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General

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