Topic: Game On: Social Networks and Markets
Speaker: Lasse Heje Pedersen, Professor, Copenhagen Business School; Distinguished Visiting Research Professor, New York University Stern School of Business
Date: May 11, 2022 (Wednesday)
I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade assets over time: naive investors who learn via a social network, “fanatics” possibly spreading fake news, and rational short- and long-term investors. I show that fanatic and rational views dominate over time, and their relative importance depends on their following by influencers. Securities markets exhibit social network spillovers, large effects of influencers and thought leaders, bubbles, bursts of high volume, price momentum, fundamental momentum, and reversal. The model sheds new light on the GameStop event, historical bubbles, and asset markets more generally.
About the speaker:
Lasse Heje Pedersen is a financial economist who loves to solve real-world problems using models and data. A Stanford PhD, he is a finance professor at Copenhagen Business School and NYU and a principal at AQR. He has served as Director of the American Finance Association, in the Liquidity Working Group meeting at the Federal Reserve Bank of New York to address liquidity issues, on the Economic Advisory Boards of NASDAQ and FTSE, and on several editorial boards, including the Journal of Finance and Quarterly Journal of Economics. His academic awards include the Bernácer Prize to the best E.U. economist under 40 years of age, the Banque de France-TSE Prize, the Stephen A. Ross Prize, Fama-DFA Prizes, the Michael Brennan Award, the Brattle Prize, and Graham and Dodd Top Awards.