Modern day equity markets are populated by investors pursuing a number of investment styles. In this paper we simulate the behaviour of investors pursuing various types of these styles in order to examine whether their interaction is a major contributing factor to inefficiencies within markets and particularly to the anomalous pricing behaviour identified in the literature. We found that small market fractions constituted by momentum and growth investors are very disruptive to markets, significantly increasing their volatility and causing mispricing for extended periods of time. They also induce an increase in both the risk and trading volume experienced by the other types of investors. We conclude that momentum and growth investing may be a source of the many market anomalies and serious thought should be given to policy, economic and social implications of equity pricing consistently not reflecting fundamental value.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney in its series Working Paper Series with number
1.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990.
"Noise Trader Risk in Financial Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 703-38, August.
[Downloadable!] (restricted)
Other versions: