Abstract
AbstractThis paper studies herd behavior, bubbles and social interactions in financial markets through the asset pricing models with heterogeneous interacting agents. The relationship between social interactions, herd behavior and bubbles is examined. It is found that herd behavior arises naturally when there are strong enough social interactions among individual investors. In addition, an extremely small bubble may cause a sufficiently large number of traders to engage in herd behavior when the social interactions among traders are strong.
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