The Herd Behavior and the Financial Instability
Given the international financial situation of the last 50 years, and considering the complexity and severity of the financial crises, it is important to study the episodes of financial instability, and especially to understand both operating mechanisms and propagation mechanisms. One endogenous mechanism of financial instability is the herd behavior, which may increase the volatility and the amplitude of any sub-part of the financial system. This paper aims to analyze this phenomenon, considering the behavior of the financial market participants, the role of information in the making decisions process, banking responsibility regarding the herd behavior. The paper also illustrates two examples of herd behavior (run bank and the "too many to fail" problem), and presents three herding measures, in an attempt to achieve a quantitative analysis of the phenomenon, besides the qualitative analysis exposed above.
References listed on IDEAS
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- Horst Siebert, 2008.
"An International Rule System to Avoid Financial Instability,"
Kiel Working Papers
1461, Kiel Institute for the World Economy.
- Siebert, Horst, 2008. "An international rule system to avoid financial instability," Kiel Working Papers 1461, Kiel Institute for the World Economy (IfW).
- Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Staff Working Papers 02-12, Bank of Canada.
- Acharya, Viral V. & Yorulmazer, Tanju, 2007.
"Too many to fail--An analysis of time-inconsistency in bank closure policies,"
Journal of Financial Intermediation,
Elsevier, vol. 16(1), pages 1-31, January.
- Viral Acharya & Tanju Yorulmazer, 2007. "Too many to fail - an analysis of time-inconsistency in bank closure policies," Bank of England working papers 319, Bank of England.
- Acharya, Viral V & Yorulmazer, Tanju, 2004. "Too Many to Fail - An Analysis of Time Inconsistency in Bank Closure Policies," CEPR Discussion Papers 4778, C.E.P.R. Discussion Papers.
- Charles Goodhart & Miguel Segoviano, 2009. "Banking Stability Measures," FMG Discussion Papers dp627, Financial Markets Group.
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