Wednesday, July 14, 2010
Why Bubbles? (Housing)
Herding and cascades are rather problematic to financial markets; they leads investors to artificially bid up asset values, thereby leading to bubbles and eventual crashes, even if investors knew better all along, which, it turns out in the housing market, they largely did.
But because investors, like fashionistas, react to each other as well as to the aggregate traces of fellow investors’ actions, they exacerbate systemic risk.“ (emphasis added)
3 Quarks Daily, via Ritholtz, 7/14