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 Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 246.
Date of creation: 2003
Date of revision:
Publication status: Published in The Geneva Risk and Insurance Review, vol.�31, n°1, juillet 2006, p.�35-42.
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Other versions of this item:
- LOVO, Stefano & DECAMPS, Jean-Paul, 2002. "Risk aversion and herd behavior in financial markets," Les Cahiers de Recherche 758, HEC Paris.
- G1 - Financial Economics - - General Financial Markets
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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