Herd Behavior and Asset Bubbles

Better and Better                                                                                                Day 7

      In the last two days, we learned what’s the information cascade. Then, in financial markets, will herd behavior under the information cascade cause asset bubbles? It’s hard. Because the herd behavior caused by information cascade is very fragile. A story reverse signal will interrupt the information cascade. For example, in a short-sell high information cascade, suppose an extremely confident investor appears, and he has enough money. He backhanded short the market, as in a cascade had been blocked, and the rising signal was interrupted. Then the price could be reversed and back to equilibrium. In general, herd behavior can’t cause asset bubbles. But when the market environment becomes uncertain, the possibility of market collapse has increased.

      前兩天我們學習了什麽是信息瀑布。那麼在金融市場上，信息瀑布下的羊群行為到底會不會造成資產泡沫？很難。因為這種信息瀑布造成的羊群行為是很脆弱的。一個足夠強的反響信號，就會將信息瀑布打斷。比如在一個追漲的信息瀑布中，假設有一個極度自信的投資者出現了，而且他也擁有足夠的資金，他反手做空市場，就像瀑布被截流一樣，那個不斷被加強的上漲信號就被打斷，價格由此反轉，回調到均衡。一般情況下，羊群行為不會造成資產泡沫，但是當市場環境非常不穩定時，市場崩塌的可能性就變大。

                                                                                                        August 31th,2018                                                                                                                  Bazhou.