Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73400
Authors: 
Arnold, Lutz G.
Brunner, Stephan
Year of Publication: 
2012
Series/Report no.: 
BGPE Discussion Paper 119
Abstract: 
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.
Subjects: 
market efficiency
positive feedback trading
JEL: 
G12
G14
Document Type: 
Working Paper

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