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KDI 경제정보센터

ENG
  • 경제배움
  • Economic

    Information

    and Education

    Center

국제무역
Emotions and Subjective Crash Beliefs
NBER
2024.06.25
Over the past two decades, respondents to the Shiller Investor Confidence Surveys assess the probability of a catastrophic stock market crash to be much higher that the historical frequency of such events. We decompose these crash probabilities into fundamental and subjective components and use a large language model to estimate the emotional content of respondent narratives. The subjective crash component is strongly associated with high negative affect. We use respondent location to test how news of unusual exogenous shocks affects crash belief formation. The results are consistent the risk-as-feelings hypothesis and suggest a path by which emotional response to news about salient events may play a role in the scale and variation in investor beliefs about rare disasters.