Herding behavior in asset markets

This paper examines the origins of herding behavior in asset markets and its potential to produce a price bubble. I present a model which explains the emergence and the development of herding behavior via asymmetric information and Baysian learning. A corresponding price bubble is explained through herding behavior without assuming any speculative incentives on the part of the investors. (C) 2008 Elsevier B.V. All rights reserved.