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Theory and Decision

, Volume 75, Issue 1, pp 1–15 | Cite as

Information and ambiguity: herd and contrarian behaviour in financial markets

  • J. L. Ford
  • D. Kelsey
  • W. Pang
Article

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.

Keywords

Ambiguity Choquet expected utility Generalised Bayesian update Optimism Herding Contrarian behaviour 

JEL Classification

D81 G15 

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of BirminghamBirminghamUK
  2. 2.Department of EconomicsUniversity of ExeterExeterUK
  3. 3.School of EconomicsKingston UniversityKingston Upon ThamesUK

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