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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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.
Contact details of provider:
Postal: Manufacture des Tabacs, Aile Jean-Jacques Laffont, 21 Allée de Brienne, 31000 TOULOUSE
Phone: +33 (0)5 61 12 85 89
Fax: + 33 (0)5 61 12 86 37
Web page: http://www.idei.fr/
More information through EDIRC
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; Insider Trading
- 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
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.:
- Cipriani Marco & Guarino Antonio, 2008.
"Herd Behavior and Contagion in Financial Markets,"
The B.E. Journal of Theoretical Economics,
De Gruyter, vol. 8(1), pages 1-56, October.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992.
"A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades,"
Journal of Political Economy,
University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
- Décamps, Jean-Paul & Lovo, Stefano, 2003.
"Market Informational Inefficiency, Risk Aversion and Quantity Grid,"
IDEI Working Papers
177, Institut d'Économie Industrielle (IDEI), Toulouse.
- LOVO, Stefano & DECAMPS, Jean-Paul, 2003. "Market informational inefficiency, risk aversion and quantity grid," Les Cahiers de Recherche 770, HEC Paris.
- Thomas Ho & Hans Stoll, .
"Optimal Dealer Pricing Under Transactions and Return Uncertainty,"
Rodney L. White Center for Financial Research Working Papers
27-79, Wharton School Rodney L. White Center for Financial Research.
- Ho, Thomas & Stoll, Hans R., 1981. "Optimal dealer pricing under transactions and return uncertainty," Journal of Financial Economics, Elsevier, vol. 9(1), pages 47-73, March.
- Sunil Sharma & Sushil Bikhchandani, 2000. "herd Behavior in Financial Markets - A Review," IMF Working Papers 00/48, International Monetary Fund.
- Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-48, September.
- Glosten, Lawrence R. & Milgrom, Paul R., 1985.
"Bid, ask and transaction prices in a specialist market with heterogeneously informed traders,"
Journal of Financial Economics,
Elsevier, vol. 14(1), pages 71-100, March.
- Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Marco Cipriani & Antonio Guarino, 2005.
"Herd Behavior in a Laboratory Financial Market,"
- Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
- Christophe Chamley, 2005. "Complementarities in Information Acquisition with Short-Term Trades," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-156, Boston University - Department of Economics.
- Christophe Chamley, 2005. "Complementarities in Information Acquisition with Short-Term Trades," Boston University - Department of Economics - Working Papers Series WP2005-027, Boston University - Department of Economics.
- Maria Grazia Romano, 2007.
"Learning, Cascades, and Transaction Costs,"
Review of Finance,
European Finance Association, vol. 11(3), pages 527-560.
- J L Ford, David Kelsey and W Pang, 2005. "Ambiguity in Financial Markets: Herding and Contrarian Behaviour," Discussion Papers 05-11, Department of Economics, University of Birmingham.
- LOVO, Stefano & DECAMPS, Jean-Paul, 2003.
"Market informational inefficiency, risk aversion and quantity grid,"
Les Cahiers de Recherche
770, HEC Paris.
- Décamps, Jean-Paul & Lovo, Stefano, 2003. "Market Informational Inefficiency, Risk Aversion and Quantity Grid," IDEI Working Papers 177, Institut d'Économie Industrielle (IDEI), Toulouse.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.