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Herding behavior in asset markets

Listed author(s):
  • Hott, Christian

This paper examines the origins of herding behavior in asset markets and its potential to produce a price bubble. I present a model which explains the emergence and the development of herding behavior via asymmetric information and Baysian learning. A corresponding price bubble is explained through herding behavior without assuming any speculative incentives on the part of the investors.

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File URL: http://www.sciencedirect.com/science/article/pii/S1572-3089(08)00013-2
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Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 5 (2009)
Issue (Month): 1 (January)
Pages: 35-56

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Handle: RePEc:eee:finsta:v:5:y:2009:i:1:p:35-56
Contact details of provider: Web page: http://www.elsevier.com/locate/jfstabil

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  1. Mathias Drehmann & Jörg Oechssler, 2004. "Herding and Contrarian Behavior in Financial Markets - An Internet Experiment," Econometric Society 2004 North American Winter Meetings 55, Econometric Society.
  2. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Scholarly Articles 27692662, Harvard University Department of Economics.
  3. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-748, September.
  4. David Romer, 1992. "Rational Asset Price Movements Without News," NBER Working Papers 4121, National Bureau of Economic Research, Inc.
  5. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
  6. 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.
  7. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
  8. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-862, December.
  9. Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets; A Review," IMF Working Papers 00/48, International Monetary Fund.
  10. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  11. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  12. Jeremy J. Siegel, 2003. "What Is an Asset Price Bubble? An Operational Definition," European Financial Management, European Financial Management Association, vol. 9(1), pages 11-24.
  13. Orlean, Andre, 1995. "Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 257-274, October.
  14. Kenneth A. Froot & Maurice Obstfeld, 1989. "Intrinsic Bubbles: The Case of Stock Prices," NBER Working Papers 3091, National Bureau of Economic Research, Inc.
  15. Hirshleifer, David & Subrahmanyam, Avanidhar & Titman, Sheridan, 2002. "Feedback and the Success of Irrational Investors," University of California at Los Angeles, Anderson Graduate School of Management qt2b82s539, Anderson Graduate School of Management, UCLA.
  16. Welch, Ivo, 2000. "Herding among security analysts," Journal of Financial Economics, Elsevier, vol. 58(3), pages 369-396, December.
  17. Hirshleifer, David & Teoh, Siew Hong, 2001. "Herd Behavior and Cascading in Capital Markets: A Review and Synthesis," MPRA Paper 5186, University Library of Munich, Germany.
  18. Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-896, July.
  19. Sendhil Mullainathan, 2002. "A Memory-Based Model of Bounded Rationality," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 735-774.
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