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Is it Social Influence on Beliefs Under Ambiguity? A Possible Explanation for Volatility Clustering

Author

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  • Hammad A. Siddiqi

    (LUMS)

Abstract

Influencing and being influenced by others is the very essence of human behaviour. We put forward an exploratory asset-pricing model allowing for social influence on investor judgments under ambiguity. The time series of returns generated by our model displays volatility clustering, a puzzling stylised fact observed in financial markets. This suggests that social influence on investor judgments may be playing a role in generating volatility clustering.

Suggested Citation

  • Hammad A. Siddiqi, 2006. "Is it Social Influence on Beliefs Under Ambiguity? A Possible Explanation for Volatility Clustering," Microeconomics Working Papers 22279, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:microe:22279
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    File URL: http://www.eaber.org/node/22279
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    References listed on IDEAS

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    More about this item

    Keywords

    Social Influence; Knightian Uncertainty; Ambiguity; Volatility Clustering;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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