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Herd behavior, bubbles and social interactions in financial markets

Author

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  • Chang Sheng-Kai

    (Department of Economics, National Taiwan University, 21 Hsu-Chow Road, Taipei 100, Taiwan)

Abstract

This paper studies herd behavior, bubbles and social interactions in financial markets through the asset pricing models with heterogeneous interacting agents. The relationship between social interactions, herd behavior and bubbles is examined. It is found that herd behavior arises naturally when there are strong enough social interactions among individual investors. In addition, an extremely small bubble may cause a sufficiently large number of traders to engage in herd behavior when the social interactions among traders are strong.

Suggested Citation

  • Chang Sheng-Kai, 2014. "Herd behavior, bubbles and social interactions in financial markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 18(1), pages 89-101, February.
    • Handle: RePEc:bpj:sndecm:v:18:y:2014:i:1:p:89-101:n:6
    DOI: 10.1515/snde-2013-0024
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    References listed on IDEAS

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