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Financial crises as herds: overturning the critiques

Chari, VV; Kehoe, PJ; (2004) Financial crises as herds: overturning the critiques. Journal of Economic Theory , 119 (1) pp. 128-150. 10.1016/S0022-0531(03)00225-4. Green open access

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Financial crises are widely argued to be due to herd behavior. Yet recently developed models of herd behavior have been subjected to two critiques which seem to make them inapplicable to financial crises. Herds disappear from these models if two of their unappealing assumptions are modified: if their zero-one investment decisions are made continuous and if their investors are allowed to trade assets with market-determined prices. However, both critiques are overturned—herds reappear in these models—once another of their unappealing assumptions is modified: if, instead of moving in a prespecified order, investors can move whenever they choose.

Type: Article
Title: Financial crises as herds: overturning the critiques
Location: Venice Int Univ, Venice, ITALY
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/S0022-0531(03)00225-4
Publisher version: https://doi.org/10.1016/S0022-0531(03)00225-4
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Information cascades,Capital flows,Financial collapse
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/10058356
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