Animal Spirits and Risk in Financial Markets

Jukka Ilomäki

Journal of Banking and Financial Economics, 2018, vol. 1, issue 9, 52-59

Abstract: Keynes argues that a beauty contest in financial markets is a combination of rational higher-order beliefs and market psychology or animal spirits. We find that a stable equilibrium, where also market psychology is included, can be possible if uninformed investors agree to reduce their required rate of return indicating that they enlarge the risk of their investment with the animal spirits component.

Keywords: Risk; Portfolio Choice; Asset Pricing (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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