Risk aversion and herd behavior in financial markets
AbstractWe show that differences in investors risk aversion can generate herd behavior in stock markets where assets are traded sequentially. This in turn prevents markets from being efficient in the sense that financial market prices do not converge to the asset's fundamental value. The informational efficiency of the market depends on the distribution of the risky asset across risk averse agents. These results are obtained without introducing multidimensional uncertainty.
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Bibliographic InfoPaper provided by HEC Paris in its series Les Cahiers de Recherche with number 758.
Length: 36 pages
Date of creation: 14 May 2002
Date of revision:
herd behavior; stock markets; efficiency;
Other versions of this item:
- Décamps, Jean-Paul & Lovo, Stefano, 2003. "Risk Aversion and Herd Behavior in Financial Markets," IDEI Working Papers 246, Institut d'Économie Industrielle (IDEI), Toulouse.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
- NEP-CFN-2002-12-02 (Corporate Finance)
- NEP-FIN-2002-12-02 (Finance)
- NEP-FMK-2002-12-02 (Financial Markets)
- NEP-RMG-2002-12-02 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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