Herd Behavior Bubbles And Crashes
Herd Behaviour, Bubbles and Crashes
Author(s): Thomas Lux
Source: The Economic Journal, Vol. 105, No. 431 (Jul., 1995), pp. 881-896
Published by: Wiley on behalf of the Royal Economic Society
Stable URL: http://www.jstor.org/stable/2235156 .
Accessed: 09/03/2015 04:01
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The EconomicJournal, 105 (July), 88I-896. ? Royal Economic Society I995. Published by Blackwell
Publishers, io8 Cowley Road, Oxford OX4 iJF, UK and 238 Main Street, Cambridge, MA 02142, USA.
HERD BEHAVIOUR,
BUBBLES AND CRASHES*
ThomasLux
This paper attempts to formalise herd behaviour or mutual mimetic contagion in speculative markets. The emergence of bubbles is explained as a self-organising process of infection among traders leading to equilibrium prices which deviate from fundamental values. It is postulated furthermore that the speculators ' readiness to follow the crowd depends on one basic economic variable, namely actual returns. Above average returns are reflected in a generally more optimistic attitude that fosters the disposition to overtake others ' bullish beliefs and viceversa.This economic influence makes bubbles transient phenomena and leads to repeated fluctuations around fundamental values.
For a long time, the
Author(s): Thomas Lux
Source: The Economic Journal, Vol. 105, No. 431 (Jul., 1995), pp. 881-896
Published by: Wiley on behalf of the Royal Economic Society
Stable URL: http://www.jstor.org/stable/2235156 .
Accessed: 09/03/2015 04:01
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp .
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
.
Wiley and Royal Economic Society are collaborating with JSTOR to digitize, preserve and extend access to The
Economic Journal.
http://www.jstor.org
This content downloaded from 122.170.126.130 on Mon, 9 Mar 2015 04:01:50 AM
All use subject to JSTOR Terms and Conditions
The EconomicJournal, 105 (July), 88I-896. ? Royal Economic Society I995. Published by Blackwell
Publishers, io8 Cowley Road, Oxford OX4 iJF, UK and 238 Main Street, Cambridge, MA 02142, USA.
HERD BEHAVIOUR,
BUBBLES AND CRASHES*
ThomasLux
This paper attempts to formalise herd behaviour or mutual mimetic contagion in speculative markets. The emergence of bubbles is explained as a self-organising process of infection among traders leading to equilibrium prices which deviate from fundamental values. It is postulated furthermore that the speculators ' readiness to follow the crowd depends on one basic economic variable, namely actual returns. Above average returns are reflected in a generally more optimistic attitude that fosters the disposition to overtake others ' bullish beliefs and viceversa.This economic influence makes bubbles transient phenomena and leads to repeated fluctuations around fundamental values.
For a long time, the
References: THE (1992). Lux, T. (0994). 'Endogenous noise in speculative markets. ' mimeo: University of Bamberg. Shiller, R. J. (1984). 'Stock prices and social dynamics. ' BrookingsPapersin EconomicActivity,no. 2, pp.