Evidence and Effects of Social Referencing Investor Behaviour During Market Bubbles

“Evidence of Social Referencing Behaviour during Market Bubbles” (Stephen Chen, Brenda Spotton Visano, Michael Lui, Chaohui Lu) IAENG International Journal of Computer Science, Volume 37 Issue 4, Pages 359-366 London, U.K , 2010

8 Pages Posted: 27 Jan 2016

See all articles by Stephen Chen

Stephen Chen

York University

Brenda Spotton Visano

York University

Michael Lui

York University

Chaohui Lu

Carleton University

Date Written: November 23, 2010

Abstract

Market bubbles often occur around the same time that new means of investing become available to enable increased market participation. An important aspect of increased market participation is the possible introduction of new investors who behave differently from existing traditional investors. Preliminary evidence from a new data set constructed from publicly available information suggests that these new investors display social referencing behaviour – their investment decisions are based more on social information (e.g., members of their peer group have purchased a stock) and less on typical financial information (e.g., the price of a stock). During the internet bubble of the late 1990s, our collected data show how investors using newly introduced on-line brokerages may have invested differently than investors using traditional and established brokerages. Using this model, we simulate an influx of these new social referencing investor agents in a proportion that is similar to the market weight that new on-line investors had during the internet bubble. The ability of our model to cause a quantitatively accurate, multi-agent simulation of traditional investors to similarly produce a price bubble demonstrates the potential that multi-agent models can have to produce quantitative results for qualitative investor models.

Keywords: hybrid multi-agent model, market manias, price bubbles, social investors

JEL Classification: C63, D71, D84, G11, G14

Suggested Citation

Chen, Stephen and Spotton Visano, Brenda and Lui, Michael and Lu, Chaohui, Evidence and Effects of Social Referencing Investor Behaviour During Market Bubbles (November 23, 2010). “Evidence of Social Referencing Behaviour during Market Bubbles” (Stephen Chen, Brenda Spotton Visano, Michael Lui, Chaohui Lu) IAENG International Journal of Computer Science, Volume 37 Issue 4, Pages 359-366 London, U.K , 2010, Available at SSRN: https://ssrn.com/abstract=2722441

Stephen Chen

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Brenda Spotton Visano (Contact Author)

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Michael Lui

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Chaohui Lu

Carleton University ( email )

1125 colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

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