A survey compared speculative behavior in two groups of institutional
investors. The "experimental" group held stocks that had shown extraordinary
price increases over the preceding year that also had high price earnings
ratios. The control group held randomly selected stocks. In Shiller and
Pound  we argued that the survey results gave some support to some
diffusion or epidemic models for interest in the stocks in the experimental
group. Here, we show that the two groups are similar in describing their
investment strategy as relating to a theory about fundamental value rather
than about the kind of stocks that are becoming attractive to investors.
However, the experimental group is less likely to make explicit comparisons
of price with measures of fundamental value, and differs from the control
group in their attitudes toward timing, price changes, and short-term
earnings disappointment. Overall, these results appear consistent with the
notion that price changes unrelated to fundamentals may be caused by
contagious enthusiasm about fundamentals amongst institutional investors.
The holding patterns of those experimental group investors who said that
they were unsystematic in their stock choice are studied. These investors
tended to show gradually increasing holdings over the period of stock price
increase. Reasons respondents gave for the gradual increase are discussed.
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