Editing Bandwagon effect (section)

====Financial markets====
The bandwagon effect comes about in two ways in [[financial market]]s.

First, through [[price bubble]]s: these bubbles often happen in financial markets in which the price for a particularly popular [[Security (finance)|security]] keeps on rising. This occurs when many [[investor]]s line up to buy a security [[bidding]] up the price, which in return attracts more investors. The price can rise beyond a certain point, causing the security to be highly [[Overvaluation|overvalued]].<ref name=":3" />

Second is [[liquidity]] holes: when unexpected news or events occur, [[market participant]]s will typically stop trading activity until the situation becomes clear. This reduces the number of buyers and sellers in the market, causing liquidity to decrease significantly. The lack of liquidity leaves [[price discovery]] distorted and causes massive shifts in [[Asset pricing|asset prices]], which can lead to increased panic, which further increases uncertainty, and the cycle continues.<ref name=":3" />