Herding and informational cascades – theory and implications to financial markets

dc.contributorAalto Universityen
dc.contributorAalto-yliopistofi
dc.contributor.advisorMurto, Pauli
dc.contributor.authorNykänen, Sini
dc.contributor.departmentTaloustieteen laitosfi
dc.contributor.schoolKauppakorkeakoulufi
dc.contributor.schoolSchool of Businessen
dc.date.accessioned2020-02-09T17:01:54Z
dc.date.available2020-02-09T17:01:54Z
dc.date.issued2019
dc.description.abstractThis thesis discusses herding and informational cascades and their applications to the financial markets in the form of a literature review. The basic theories by Banerjee and Bikhchandani, Hirshleifer and Welch are introduced. I briefly study the consequences of herding and find out that the equilibrium is not always socially efficient. I analyze, under which assumptions do these models cause extensive herding and what can be done to prevent it. In the last chapter I present the key theories of herding in the financial markets and discuss their limitations. The main model is Avery and Zemsky’s model of multidimensional uncertainty. The main conclusion is that the rational herding models can be applied to financial markets, but herding is only possible under certain simplifying assumptions.en
dc.format.extent26
dc.format.mimetypeapplication/pdfen
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/43003
dc.identifier.urnURN:NBN:fi:aalto-202002092077
dc.language.isoenen
dc.programmeTaloustiedeen
dc.subject.keywordherdingen
dc.subject.keywordherd behaviouren
dc.subject.keywordinformational cascadesen
dc.subject.keywordrationalityen
dc.titleHerding and informational cascades – theory and implications to financial marketsen
dc.typeG1 Kandidaatintyöfi
dc.type.ontasotBachelor's thesisen
dc.type.ontasotKandidaatintyöfi
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