ECON 3006: Graduate Student Workshop in Macroeconomics
Date and Time
Location
Julian Winkler Social contagion and asset prices: Reddit's self-organised bull runs
The prevalence of narratives that justify soaring valuations are a defining feature of asset price bubbles. We use text data from discussions on WallStreetBets (WSB), an online forum with over eleven million followers as of February 2022, as a case study on the coordination of price expectations among retail investors, and the subsequent market impact. We document that sentiments expressed by WSB users about assets' future performances (bullish or bearish) are in part due to sentiments of their peers. Peer influence is estimated in two ways using random, temporal variation in peers and an interaction network approach for different identification strategies. We model the impact of social dynamics among retail investors on asset price stability, and hypothesise that such `consensus formation' can generate a run-up, followed by an eventual crash, in the price of an asset. We apply this framework to identify components of asset demand stemming from social dynamics, measured using WSB data. These correlate significantly with reversals and volatility in stock returns. Our findings evidence the role that social dynamics play in financial markets, now amplified by online social media. Justin Katz Savings and consumption responses to student loan forbearance.
How do households adjust savings and consumption in response to liquidity from debt relief? I study this question using policy variation induced by federal student loan forbearance in the 2020 CARES Act and an individual-level panel of daily financial transactions for 315,000 borrowers. Borrowers manage liquidity from the payment pause non-optimally, choosing to prepay 0%-interest student debt instead of high-interest obligations. However, the same borrowers do not make the same mistakes in response to liquidity from direct stimulus payments, and instead correctly prioritize repaying high-interest debt. This behavior suggests a flypaper effect that causes borrowers to treat liquidity from debt relief as non-fungible with liquidity from other windfalls, leading to debt repayment mistakes. Consistent with the predictions of such an effect, borrowers display a marginal propensity to spend (MPX) out of forbearance liquidity that is about half the size of their MPX out of fiscal stimulus. These findings inform ongoing debates about student debt forgiveness. On the one hand, the results suggest many student borrowers are not constrained, and so debt forgiveness might have poor redistributive properties. On the other hand, borrowers do not behave as though direct stimulus and debt relief as substitutes, possibly alleviating concerns about inflationary effects.
Website: https://canvas.harvard.edu/courses/107387
Contact: Jamie Murray
Contact email: jamiemurray@fas.harvard.edu