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Two-period trading sentiment asset pricing model with information

  • Yang, Chunpeng
  • Li, Jinfang
Registered author(s):

    We present a dynamic asset pricing model with investor sentiment and information, which shows that the investor sentiment plays a systematic and important role in the asset prices and the information is gradually incorporated into prices. The model has an analytical solution to the sentiment equilibrium price. We find that sentiment trading quantity not only increases the market liquidity, but also causes the asset prices' overreaction if the intensity of sentiment demand is more than a constant value. Therefore, the continuing overreactions result in a short-term momentum and a long-term reversal. The model could offer a partial explanation to some financial anomalies such as price bubbles, high volatility, asset prices' overreaction and so on.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0264999313003787
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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 36 (2014)
    Issue (Month): C ()
    Pages: 1-7

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    Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:1-7
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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