Is it Social Influence on Beliefs Under Ambiguity? A Possible Explanation for Volatility Clustering

Hammad Siddiqi ()

Microeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: Influencing and being influenced by others is the very essence of human behaviour. We put forward an exploratory asset-pricing model allowing for social influence on investor judgments under ambiguity. The time series of returns generated by our model displays volatility clustering, a puzzling stylised fact observed in financial markets. This suggests that social influence on investor judgments may be playing a role in generating volatility clustering.

Keywords: Social Influence; Knightian Uncertainty; Ambiguity; Volatility Clustering (search for similar items in EconPapers)
JEL-codes: D70 D71 G12 (search for similar items in EconPapers)
Date: 2006-01
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