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Bubbles and Volatility of Stock Prices: Effect of Mimetic Contagion

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  • Topol, Richard
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    Abstract

    The author discusses the effect of the mimetic contagion on the dynamics of stock prices. Each investor bids and/or asks prices such that adjusts to his present value, calculated from his incomplete information set, and to the average price of others buyers and sellers (mimetic contagion). An original stochastic treatment, based on the equation of motion of the probability density function, is used to calculate the equations of the mean and variance of the market price. As soon as the agents are mimetic and/or have correlated present values then the moments of the market price are driven away from the fundamental ones. Copyright 1991 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 101 (1991)
    Issue (Month): 407 (July)
    Pages: 786-800

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    Handle: RePEc:ecj:econjl:v:101:y:1991:i:407:p:786-800

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