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A Note on Risk Aversion and Herd Behavior in Financial Markets

Author

Listed:
  • Stefano Lovo

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • J. P. Décamps

Abstract

We show that differences in market participants risk aversion can generate herd behavior in stock markets where assets are traded sequentially. This in turn prevents learning of market's fundamentals. These results are obtained without introducing multidimensional uncertainty or transaction cost.

Suggested Citation

  • Stefano Lovo & J. P. Décamps, 2006. "A Note on Risk Aversion and Herd Behavior in Financial Markets," Post-Print halshs-00119563, HAL.
    • Handle: RePEc:hal:journl:halshs-00119563
    DOI: 10.1007/s10713-006-9466-x
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    Cited by:

    1. Li, Ming-Yuan Leon, 2009. "Value or volume strategy?," Finance Research Letters, Elsevier, vol. 6(4), pages 210-218, December.
    2. Christophe Bisière & Jean-Paul Décamps & Stefano Lovo, 2015. "Risk Attitude, Beliefs Updating, and the Information Content of Trades: An Experiment," Management Science, INFORMS, vol. 61(6), pages 1378-1397, June.
    3. Papavassiliou, Vassilios G. & Kinateder, Harald, 2021. "Information shares and market quality before and during the European sovereign debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    4. Astebro, Thomas B. & Lovo, Stefano & Fernandez Sierra, Manuel & Vulkan, Nir, 2017. "Herding in Equity Crowdfunding," HEC Research Papers Series 1245, HEC Paris, revised 04 Jun 2018.
    5. Zhuo Qiao & Thomas C. Chiang & Lin Tan, 2014. "Empirical Investigation of the Causal Relationships Among Herding, Stock Market Returns, and Illiquidity: Evidence from Major Asian Markets," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(03), pages 1-27.

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