Celebrity Effects: How Famous Traders Impact the Financial Market
Ahmad Shahidi

Imitation is one of those personal behaviors which have profound social and economical implications. It has been suggested that this phenomenon is the leading cause of wide spread modes and fashions.3 Even financial markets with rational, and to some extent, experienced and serious participants are not immune from imitative behaviors. The term ``animal spirit'' was used by Keynes mostly in reference to these kind of behaviors. In this paper, we study a model of financial markets in which there is a ``star'' trader whose actions are watched and are given a special group of traders which I call them ``star-watchers''. We investigate the price formation in this model in which a single asset is being traded, and two types of traders star-watchers, and ``news-watcher'', trade and in tract to form the market comes to affecting other people's behavior. We show how this celebrity or star effect can inflate prices and be a cause of bubble formation in the financial markets.

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