Smart Money, Noise Trading And Stock Price Behavior
AbstractThis paper estimates an equilibrium model of stock price behavior in which changes in exponentially detrended dividends and prices are normally distributed and exogenous "noise traders" interact with "smart-money" investors who have constant absolute ris k aversion. The model can explain the volatility and predictability of U.S. stock returns in the period 1871-1986 using either a low discount rate (4 percent or below) and a large constant risk discount on the stock price, or a higher discount rate (5 percent or above) and noise trading correlated with fundamentals. The data are not well able to distinguish between these explanations. Copyright 1993 by The Review of Economic Studies Limited.
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Bibliographic InfoPaper provided by Princeton, Department of Economics - Financial Research Center in its series Papers with number 95.
Length: 73 pages
Date of creation: 1988
Date of revision:
financial market ; trade ; economic models;
Other versions of this item:
- Campbell, John Y & Kyle, Albert S, 1993. "Smart Money, Noise Trading and Stock Price Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 1-34, January.
- Kyle, Albert & Campbell, John, 1993. "Smart Money, Noise Trading and Stock Price Behaviour," Scholarly Articles 3208217, Harvard University Department of Economics.
- John Y. Campbell & Albert S. Kyle, 1988. "Smart Money, Noise Trading and Stock Price Behavior," NBER Technical Working Papers 0071, National Bureau of Economic Research, Inc.
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