Does Social Interaction destabilise Financial Markets?

Frederik Konig

Abstract


With this paper, I propose a simple asset pricing model that accounts for the influence from social interaction. Investors are assumed to make up their mind about an asset’s price based on a forecasting strategy and its past profitability as well as on the contemporaneous expectations of other market participants. Empirically analysing stocks in the DAX30 index, I provide evidence that social interaction rather destabilises financial markets. At least, it does not have a stabilising effect.

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DOI: https://doi.org/10.5296/rbm.v2i1.6359

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