Keywords
Risk; Portfolio Choice; Asset Pricing
Abstract
Keynes argues that a beauty contest in financial markets is a combination of rational higher-order beliefs and market psychology or animal spirits. We find that a stable equilibrium, where also market psychology is included, can be possible if uninformed investors agree to reduce their required rate of return indicating that they enlarge the risk of their investment with the animal spirits component.
Acknowledgments
I would like to thank Hannu Laurila, the editor and two anonymous referees.
Recommended Citation
Ilomäki, J. (2024). Animal Spirits and Risk in Financial Markets. Journal of Banking and Financial Economics, 2018(9), 52-59. https://doi.org/10.7172/2353-6845.jbfe.2018.1.3
First Page
52
Last Page
59
Page Count
8
Received Date
28 April 2017
Revised Date
12 February 2018
Accept Date
13 February 2018
Online Available Date
19 February 2018
DOI
10.7172/2353-6845.jbfe.2018.1.3
JEL Code
G11; G12
Publisher
University of Warsaw