Behavioral Finance.

The NBER's Working Group on Behavioral Finance met on November 10 in New Haven. Robert J. Shiller, NBER and Yale University, and Richard H. Thaler, NBER and University of Chicago, organized this program:

Nicholas C. Barberis, NBER and University of Chicago, and Andrei Shleifer, NBER and Harvard University, "Style Investing" (NBER Working Paper No. 8039)

Discussant: Sanford J. Grossman, NBER and University of Pennsylvania

Anna Scherbina, Northwestern University, "Stock Prices and Differences of Opinion: Empirical Evidence that Prices Reflect Optimism"

Discussant: Richard H. Thaler

Joseph Chen and Harrison Hong, Stanford University, and Jeremy C. Stein, NBER and Harvard University, "Breadth of Ownership and Stock Returns"

Discussant: Jeffrey A. Wurgler, Yale University

Brad M. Barber and Terrance Odean, University of California, Davis, and Lu Zheng, University of Michigan, "The Behavior of Mutual Fund Investors"

Discussant: William N. Goetzmann, NBER and Yale University

Louis K. C. Chan, University of Illinois; Jason J. Karceski, University of Florida; and Josef Lakonishok, NBER and University of Illinois, "The Level and Persistence of Growth Rates"

Discussant: Cliff Asness, AQR Capital Management, LLC

Jeffery S. Abarbanell, University of North Carolina, and Reuven Lehavy, University of California, Berkeley, "Biased Forecasts or Biased Earnings? The Role of Earnings Management in Explaining Apparent Optimism and Inefficiency in Analysts' Earnings Forecasts"

Discussant: Jay Patel, Boston University

Barberis and Shleifer study asset prices in an economy in which some investors classify risky assets into different styles and move funds back and forth between these styles depending on relative performance. News about one style can affect the prices of other apparently unrelated styles; assets in the same style will move together too much, while assets in different styles co-move together too little; and high average returns on a style will be associated with common factors unrelated to risk. These assumptions imply that style momentum strategies will be very profitable. The authors use their model to shed light on a number of puzzling features of the data.

Scherbina investigates how differences in opinions regarding stock valuations influence prices. She finds that stock prices are driven by investors with an optimistic outlook whenever market and institutional frictions prevent pessimistic investors from expressing their opinion. As a result...