Les Cahiers de Recherche - HEC Paris
Stefano LOVO and Jean-Paul DECAMPS
Risk aversion and herd behavior in financial markets
Abstract: 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.
Keywords: herd behavior; stock markets; efficiency; (follow links to similar papers)
JEL-Codes: G14; (follow links to similar papers)
36 pages, May 14, 2002
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