Multidimensional Uncertainties Research Articles

Herd Behavior in Financial Markets

This paper provides a rational microstructure model in which informed traders have private information on multi-dimensional uncertainties and it is possible for the herd behavior to occur. In the herd phase, informed traders choose to trade in the same direction regardless of their private signals. In addition, we find that there always exists a transitional phase between the normal phase and the herd phase. The market enters a transition phase when some informed traders’ expectation on the risky asset value is within the bid-ask spread. In the transition phase, the market liquidity deteriorates, marked by larger spread and stronger price impact power of incoming orders. The research in the multiple markets situation shows that what happens in the transition phase in one market could affect not only that market but also related markets. It provides the stage for the market crash and the herd behavior to be contagious among multiple assets whose values are correlated.

Evaluation of interconnected production sites taking into account multidimensional uncertainties

The production sites of international companies are becoming increasingly interconnected. Due to the uncertainty of multiple factors, determining a location is a strategic choice entailing high financial risk. For this reason, a method for site evaluation was developed allowing multidimensional, i.e., both quantitative and qualitative, uncertainties to be taken into account. The uncertainties are modeled with both probability and fuzzy-set theory and integrated into a modular-structured monetary calculation model. For the analysis and interpretation of evaluation results, methods have been developed which allow risk assessment. The developed method provides a way to handle existing location risks and can thus ensure the success of manufacturing companies in the long term.