Information and ambiguity: herd and contrarian behaviour in financial markets

The paper studies the impact of informational ambiguity on behalf of informed traders on history-dependent price behaviour in a model of sequential trading in financial markets. Following Chateauneuf et al. (J Econ Theory 137:538–567, <CitationRef CitationID="CR6">2008</CitationRef>), we use neo-additive capacities to model ambiguity. Such ambiguity and attitudes to it can engender herd and contrarian behaviour, and also cause the market to break down. The latter, herd and contrarian behaviour, can be reduced by the existence of a bid-ask spread. Copyright Springer Science+Business Media New York 2013