CEU Electronic Theses and Dissertations, 2015
| Author | Szabó, Barna Elek |
|---|---|
| Title | Short-term Trading and Informational Cascades in Financial Markets |
| Summary | I propose a herding model to analyze the dynamics of financial markets in the presence of both short-term and long-term traders. I show that with the assumption of full rationality, the microstructure of markets prevent herd behavior and informational cascades. Albeit short-term traders stop trading sincerely if prices become precise enough, they are not able to manipulate long-term traders. However, in a modified model when long-term traders underestimate the myopia of the market, they engage in herd behavior, with positive probability on the wrong state. Short-term investors trade contrary to the herding mass due to the skewed distribution of returns. Prices do not converge to the true value of the asset, even on an infinite time horizon. |
| Supervisor | Kondor, Péter |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2015/szabo_barna.pdf |
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