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The economics of rational speculation in the presence of positive feedback trading

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  • Arnold, Lutz G.
  • Brunner, Stephan

Abstract

This paper generalizes De Long et al.'s (1990a) seminal model of destabilizing rational speculation in the presence of positive feedback trading by incorporating additional trading dates and an additional informative signal. Rational speculation can be stabilizing in the generalized model. The model is compatible with observed patterns of asset prices, such as short-term momentum and mean reversion. There is little scope for interpreting the equilibrium asset price as deviating from fundamental value.

Suggested Citation

  • Arnold, Lutz G. & Brunner, Stephan, 2015. "The economics of rational speculation in the presence of positive feedback trading," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 161-174.
    • Handle: RePEc:eee:quaeco:v:57:y:2015:i:c:p:161-174
    DOI: 10.1016/j.qref.2014.11.005
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    Cited by:

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    2. Xu, Shaojun, 2023. "Behavioral asset pricing under expected feedback mode," International Review of Financial Analysis, Elsevier, vol. 86(C).
    3. Sofiane Aboura, 2016. "Individual investors and stock returns," Journal of Asset Management, Palgrave Macmillan, vol. 17(7), pages 477-485, December.

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    More about this item

    Keywords

    G12; G14; Market efficiency; Positive feedback trading; Bubbles;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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