Main Street vs. Wall Street: A Comparison of Views

Finance

Speaker:Robin Lumsdaine, Kogod Business School, American University
Date: Friday 9 March 2012
Time: 2pm
Location: Streatham Court 0.28

Further details

This paper challenges recent conventional wisdom of a growing divide between Wall Street (financial market participants) and Main Street (the average American consumer) by comparing the views of survey respondents regarding the likelihood of future increases or decreases in the stock market to expectations derived via application of the Black-Scholes formula to prices of options on an equity index.  The results show that on average, the views of the general population coincide well with those of financial market participants, although over the time period studied, Main Street views appear to have a higher optimism component than those observed in option-implied probabilities.  There is also evidence that greater financial awareness or interest coincides with a closer association between the survey response and corresponding option-implied probability.