CEU Electronic Theses and Dissertations, 2013
| Author | Bátyi, Tamás László |
|---|---|
| Title | Naive herding in financial markets |
| Summary | In this paper I propose models of naive herding on financial markets. I show that in a simple model with inferential naivete only, the microstructure of markets prevent even naive agents to engage in herd behavior. Then I suggest a model with correlated private signals and show that if biased agents neglect the correlation structure of the signals, that can result in naive herding even in the simplest possible environment. Moreover, with the existence of both rational and naive agents, informational cascades do occur with positive probability and herding on the wrong states stop endogenously almost surely, so this model has results that are very similar what can be observed in real financial markets. The model has also important implications about how naive beliefs could diverge from rational ones. |
| Supervisor | Szeidl, Ádám |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2013/batyi_tamas.pdf |
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