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Random Walks, Lemmings, And Behaviorism; The Search For A Market Lodestar

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  • Sondey, John

Abstract

Per the Efficient Market Hypothesis, all new information concerning a corporation and its performance is quickly assimilated into its share price. Hence, the assiduous investor who ferrets out "fresh" news will be nonplussed, as that information is already accounted for in the stock's price. With no reward to revelation, the standard recourse is investment in a representative market basket and a wait for "lightning" to strike already-held shares. However, recent market bubbles (Nasdaq, 2000-01)and lemming-like rushes to the sea of profit, suggest that irrational investor behavior creates inefficient, unpredictable markets. The irony is that, the internet, which provides the investor with near-perfect information, also helps create inefficiencies by nurturing in the investor, a sense of hubris and false superiority which results in under and overreaction, overinvesting, and market volatility.

Suggested Citation

  • Sondey, John, 2001. "Random Walks, Lemmings, And Behaviorism; The Search For A Market Lodestar," Economics Staff Papers 32016, South Dakota State University, Department of Economics.
    • Handle: RePEc:ags:sdsusp:32016
    DOI: 10.22004/ag.econ.32016
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    References listed on IDEAS

    as
    1. Garber, Peter M, 1990. "Famous First Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 35-54, Spring.
    2. Vasilev, Aleksandar & Maksumov, Rashid, 2010. "Critical analysis of Chapter 23 of Keynes’s Notes on Mercantilism in The General Theory of Employment, Interest and Money (1936)," EconStor Research Reports 155318, ZBW - Leibniz Information Centre for Economics.
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    Demand and Price Analysis;

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