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Noise Traders and Herding Behavior

Author

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  • Lee Scott Redding

Abstract

Recent developments in financial economics have included many explorations into market microstructure, that is, the internal functioning of markets and the ways in which they provide liquidity to traders. An important contribution of this literature is that prices can deviate from their fundamental values. This paper describes models of imperfect liquidity and improperly processed information in financial markets, focusing on the noise trader and investor herding literature. The motivations for this line of research are presented, followed by a description of some of the major contributions and tests of some of their empirical implications.

Suggested Citation

  • Lee Scott Redding, 1996. "Noise Traders and Herding Behavior," IMF Working Papers 1996/104, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1996/104
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=2073
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    Citations

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    Cited by:

    1. Stephan Schulmeister, 2000. "Technical Analysis and Exchange Rate Dynamics," WIFO Studies, WIFO, number 25857, April.
    2. Kramer, Charles, 1999. "Noise trading, transaction costs, and the relationship of stock returns and trading volume," International Review of Economics & Finance, Elsevier, vol. 8(4), pages 343-362, November.
    3. Hong G. Min & McDonald, Judith A., 1999. "Does a thin foreign exchange market lead to destabilizing capital-market speculation in the Asian Crisis countries?," Policy Research Working Paper Series 2056, The World Bank.

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