Rational herding

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In economics and finance, rational herding refers to situations in which market participants react to information about the behavior of other market agents or participants rather than the behavior of the market, and the fundamental transactions.[1][2]

Rational herding in financial markets can take place because some investors believe others to be better informed than themselves, and follow them, disregarding their own information or market fundamentals.[3] Reliance on rational herding can be a source of instability in financial markets.[1]

References[edit]

  1. ^ a b International economic policy review, Volume 2 by International Monetary Fund 2001 ISBN 1-58906-030-X page 100 [1]
  2. ^ Andrea Devenow and Ivo Welch Rational herding in financial economics in European Economic Review Volume 40, Issues 3-5, April 1996, Pages 603-615 [2]
  3. ^ Handbook of Behavioral Finance edited by Brian Bruce 2010 ISBN 1-84844-651-9 page 103 [3]