BEHAVIORAL FINANCE: SPECULATIVE BUBBLES AND FINANCIAL CRISES
Harrison Hong (Princeton University)

Dates: 30 August - 3 September 2010
Time: 4:00 pm to 8:00 pm

Objectives

This course covers recent advances in the field of behavioral finance, with particular attention to the economics of speculative bubbles and financial crises.  The goal of this course is to provide an overview of recent developments in this field but with an eye towards future research.  The course is also a blend of theory and empirics.  In each instance, we will work with simple versions of the models so as to facilitate coverage of the broadest range of topics.  On the empirical side, we will focus on identification strategies rather than discuss each paper in detail.  Motivating examples for this course range from examining the dynamics of price and trading volume for internet stocks a decade ago to the recent housing bubble and the subprime mortgage crisis.

Intended for

Economists and professionals interested in behavioral finance.

Prerequisites

Participants are assumed to be confortable following master or PhD level courses in economics and finance.

 

Topics

Are smarter markets better markets?. Analysis of the effects of increasing I.Q. in financial markets on asset prices and the potentially destabilizing influence of sophisticated arbitrageurs.

Other people’s money. The consequences of classic agency conflicts such as short-termism and career concerns for risk-taking and their roles in the recent financial crisis.

Disagreement is central. Study of models based on disagreement (or divergence of opinion) among investors and short-sales and collateral constraints that can account for key stylized facts related to trading volume and asset price bubble dynamics.

Networks and social influences. The role of networks and social influences in magnifying bubbles and crises.

Macro-implications. How asset price bubbles affect corporate policies and distort real investment and consumption, with an emphasis on the recent housing boom.

Harrison Hong is the John Scully ’66 Professor of Economics and Finance at Princeton University, where he teaches courses in finance in the undergraduate, master and Ph.D. programs.  Before joining Princeton in 2002, he was on the faculty of the Graduate School of Business at Stanford University.  He received his B.A. in economics and statistics with highest distinction from the University of California at Berkeley in 1992 and his Ph.D. in economics from M.I.T. in 1997.  His research has covered such topics as: behavioral finance and stock market efficiency; asset pricing and trading under market imperfections; incentives and biases in decision making; organizational form and performance; and social interaction and markets.  He is on the editorial board of the Journal of Finance.  He is a Director of the American Finance Association and a research associate at the National Bureau of Economic Research. In 2009, he was awarded the American Finance Association’s Fischer Black Prize, given biennially to the person under 40 who has contributed the most to the theory and practice of finance.