Risk Aversion and Herd Behavior in Financial Markets
We 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.
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|Date of creation:||2003|
|Publication status:||Published in The Geneva Risk and Insurance Review, vol. 31, n°1, juillet 2006, p. 35-42.|
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