What is difference between information cascade and hearding in mkt efficiency?
Share
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
Herding is doing what everyone is doing. For example – In a bullish market everyone is buying, so we are buying without using our own analysis and information.
Information cascade is doing what the knowledgeable person is doing. For eg if some famous investor is buying a stock, so are we and this chain goes on and on.
Herding is nothing but doing as other people are doing without any specific information
But in information cascade there is a flow of information from …well informed person to less informed ..
Like rakesh jhunjhunwala koi stock buy krta h and isko dekh k bht se log b buy krte h chahe unka opinion alag ho us stock ko leke but they believe ki Rakesh jhunjhunwala k pas koi information h jo unke paas nh h ..so they follow him ..this is information cascade
The best way to remember herding and information cascade:-
Hearding means going with the heard mentality i.e. doing what everyone is doingirrespective of our opinion just out of FOMO.
Information cascade is following few big people that have access to privileged information. For eg- Warren Buffet.
Above explanations given about herding and information cascade is correct but you are asking both W.R.T. market efficiency….
the evolution of herding behavior reduces information asymmetry and improves market efficiency
in one of the core question – it is also mentioned that information cascade also improves market efficiency and also mentioned that it might result in serial co relation of return – could you please explain how these two statements complement each other?