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The Impact of Momentum Trading on the Market Price and Trades

In: Recent Advances In Financial Engineering

Author

Listed:
  • Katsumasa Nishide

    (Interdisciplinary Research Center, Yokohama National University, Japan)

Abstract

This paper theoretically analyzes a financial market with momentum trading in a market microstructure framework, and investigates how momentum trading affects the market price and trades. When momentum traders dominate the market, private information owned by rational traders may not be incorporated into the price, and a market bubble may occur. It is shown that the reliability of a firm's public announcement such as an earnings forecast is a key factor to avert the market bubble.

Suggested Citation

  • Katsumasa Nishide, 2009. "The Impact of Momentum Trading on the Market Price and Trades," World Scientific Book Chapters, in: Masaaki Kijima & Masahiko Egami & Kei-ichi Tanaka & Yukio Muromachi (ed.), Recent Advances In Financial Engineering, chapter 8, pages 135-159, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814273473_0008
    as

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