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Does social interaction destablise financial markets?

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  • Ddc:300
  • Ddc:330


With this paper, I propose a simple asset pricing model that accounts for the influence from social interaction. Investors are assumed to make up their mind about an asset’s price based on a forecasting strategy and its past profitability as well as on the contemporaneous expectations of other market participants. Empirically analysing stocks of the DAX30 index, I provide evidence that social interaction rather destabilises financial markets. Based on my results, I state that at least, it does not have a stabilising effect.

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