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Information and ambiguity: herd and contrarian behaviour in financial markets |
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| Authors: | J L Ford D Kelsey W Pang |
| Institution: | 1. Department of Economics, University of Birmingham, Birmingham, B15 2TT, UK 2. Department of Economics, University of Exeter, Exeter, EX4 4PU, UK 3. School of Economics, Kingston University, Kingston Upon Thames, KT1 2EE, UK |
| Abstract: | The paper studies the impact of informational ambiguity on behalf of informed traders on history-dependent price behaviour in a model of sequential trading in financial markets. Following Chateauneuf et al. (J Econ Theory 137:538–567, 2008), we use neo-additive capacities to model ambiguity. Such ambiguity and attitudes to it can engender herd and contrarian behaviour, and also cause the market to break down. The latter, herd and contrarian behaviour, can be reduced by the existence of a bid-ask spread. |
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