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Economics Of Stock‐Price Vibrations: Riding Speculative Waves Without Speculation

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  • Hiroshi Ohta
  • Hironobu Nakagawa
  • Yong Wang

Abstract

. When speculation causes share prices to fluctuate, even the best speculators may do ‘hardly better than the comprehensive common‐stock averages’ (Samuelson). We further demonstrate in this paper that non‐speculators can indeed benefit, in terms of both utility and wealth, from speculative price fluctuations by choosing their portfolio optimally. In particular, we show both how much and how fast non‐speculators’ wealth can accumulate, presumably at speculators’ expenses, over periods of price fluctuations. We also show a seemingly paradoxical outcome where a rational individual would rejoice more when stock prices fall than when they rise by the same (absolute) amounts.

Suggested Citation

  • Hiroshi Ohta & Hironobu Nakagawa & Yong Wang, 2007. "Economics Of Stock‐Price Vibrations: Riding Speculative Waves Without Speculation," Pacific Economic Review, Wiley Blackwell, vol. 12(5), pages 529-543, December.
    • Handle: RePEc:bla:pacecr:v:12:y:2007:i:5:p:529-543
    DOI: 10.1111/j.1468-0106.2007.00369.x
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