Jump to ContentJump to Main Navigation
Asset Pricing under Asymmetric InformationBubbles, Crashes, Technical Analysis, and Herding$
Users without a subscription are not able to see the full content.

Markus K. Brunnermeier

Print publication date: 2001

Print ISBN-13: 9780198296980

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198296983.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use (for details see www.oxfordscholarship.com/page/privacy-policy).date: 21 September 2018

Herding in Finance, Stock Market Crashes, Frenzies, and Bank Runs

Herding in Finance, Stock Market Crashes, Frenzies, and Bank Runs

Chapter:
(p.165) 6 Herding in Finance, Stock Market Crashes, Frenzies, and Bank Runs
Source:
Asset Pricing under Asymmetric Information
Author(s):

Markus K. Brunnermeier (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0198296983.003.0006

This chapter shows that herding can help to explain many empirical phenomena in finance, like stock market crashes. In a setting with widely dispersed information, even relatively unimportant news can lead to large price swings and crashes. Stock market crashes can also occur because of liquidity problems, bursting bubbles, and sunspots. Traders might also herd in information acquisition if they care about the short‐term price path as well as about the long‐run fundamental value. Under these circumstances all traders will try to gather the same piece of information. These models also provide a deeper understanding of Keynes’ comparison of the stock market with a beauty contest. Limits to arbitrage are discussed and it is shown that if investors focus on the short‐run, corporate decision‐making also becomes shortsighted. The chapter concludes with a brief summary of bank runs and its connection to financial crises.

Keywords:   arbitrage, bank runs, beauty contest, bubbles, crashes, financial crises, herding, John Maynard Keynes, short‐termism, sunspots

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .