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Equity Investments Q133

133Lin Xiu, a well-respected financial analyst, buys a stock after utilizing her analytical experience and up-to-date information. Her friends imitate Lin’s actions and also buy the same stock. Which of the following statements is most accurate?
  • Option : A
  • Explanation : This behavioral bias is an example of an information cascade wherein the transmission of information is from those participants who act first and whose decisions influence the decisions of others. The behavior of informed traders acting first and uninformed traders imitating the informed traders is consistent with rationality. The imitation trading by the uninformed traders helps the market incorporate relevant information and improves market efficiency
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