Is Rational Speculation in the Presence of Positive Feedback Traders Destabilizing?

Arbeitspapier

DeLong (1990a) et al. show that in the presence of positive feedback traders rational speculation can be destabilizing, in that it drives the price of a risky asset above its expected value. A generalization of their seminal model with additional trading dates and an additional informative signal yields further interesting insights: it helps clarify when prices overreact, underreact, or even move in the wrong direction; when rational speculation is destabilizing or stabilizing; and whether overreaction is a symptom of market inefficiency or a manifestation of informational efficiency.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BGPE Discussion Paper ; No. 119

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading
• Subject: market efficiency ; positive feedback trading ; Wertpapierspekulation ; Wertpapierhandel ; Rationales Verhalten ; Effizienzmarktthese ; Finanzmarktkrise

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Arnold, Lutz G. ; Brunner, Stephan
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
• (where): Nürnberg
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/73400
• Last update: 10.03.2025, 11:44 AM CET