The Effect of Rating Agencies on Herd Behaviour
AbstractThis paper purports to provide some evidence on the effect of rating agencies on herding in financial markets. By means of a laboratory experiment, we investigate the effect and interaction between private and public information. Previous experiments showed that lemmings behaviour can survive in a market context where information is private (Hey and Morone, 2004), and that an experimental market can be very volatile and not efficient in transmitting information (Alfarano et al., 2006). We study experimentally, if socially undesirable behaviour – that survives in a market contest – may be eliminated owing to the presence of rating agencies.
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Bibliographic InfoPaper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2008_21.
Length: 24 pages
Date of creation: 21 Oct 2008
Date of revision:
Herd behaviour; informational cascades; rating agency; bubble.;
Other versions of this item:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-14 (All new papers)
- NEP-CBE-2008-12-14 (Cognitive & Behavioural Economics)
- NEP-CTA-2008-12-14 (Contract Theory & Applications)
- NEP-EXP-2008-12-14 (Experimental Economics)
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