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SUMMARY:Herd Induced by Uninformed Traders in Efficient Financial Markets 
 - Gongyu Chen (PhD student\, Department of Economics)
DTSTART:20081021T160000Z
DTEND:20081021T170000Z
UID:TALK14848@talks.cam.ac.uk
CONTACT:Eva Gottschalk
DESCRIPTION:Rational herd is usually regarded to be difficult\, if not imp
 ossible\, to take place in an efficient financial market. In an extension 
 of a sequential unit trading model\, we find that large numbers of inferio
 rly informed traders who used not to trade could be induced to engage in h
 erding when there are only a few uninformed traders adopting feedback stra
 tegies. We show conditions under which different scenarios take place. The
  herding led by uninformed traders could be persistent and robust without 
 information cascade. The model also captures the gradual accumulation of m
 arket frenzies and panics. As the required number of uninformed traders wh
 o trigger the informed trader’s herding could be very small\, the model 
 is plausibly justified in reality. The model thus provides us with a uniqu
 e framework for looking into many interesting phenomena in financial marke
 ts.
LOCATION:Winstanley Lecture Hall\, Trinity College
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