Positive Feedback Investment Strategies and Destabilizing Rational Speculation
Analyses of the role of rational speculators in financial markets usually presume that such investors dampen price fluctuations by trading against liquidity or noise traders. This conclusion does not necessarily hold when noise traders follow positive-feedback investment strategies buy when prices rise and sell when prices fall. In such cases, it may pay rational speculators to try to jump on the bandwagon early and to purchase ahead of noise trader demand. If rational speculators' attempts to jump on the bandwagon early trigger positive-feedback investment strategies, then an increase in the number of forward-looking rational speculators can lead to increased volatility of prices about fundamentals.
|Date of creation:||Mar 1989|
|Publication status:||published as Journal of Finance, Vol. 45, No. 2, (June 1990), pp. 374-97.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Andrew W. Lo, A. Craig MacKinlay, 1988.
"Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test,"
Review of Financial Studies,
Society for Financial Studies, vol. 1(1), pages 41-66.
- Andrew W. Lo & A. Craig MacKinlay, 1987. "Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test," NBER Working Papers 2168, National Bureau of Economic Research, Inc.
- Karl E. Case & Robert J. Shiller, 1988. "The behavior of home buyers in boom and post-boom markets," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-46.
- Robert J. Shiller & Karl E. Case, 1988. "The Behavior of Home Buyers in Boom and Post-Boom Markets," Cowles Foundation Discussion Papers 890, Cowles Foundation for Research in Economics, Yale University.
- Karl E. Case & Robert J. Shiller, 1988. "The Behavior of Home Buyers in Boom and Post-Boom Markets," NBER Working Papers 2748, National Bureau of Economic Research, Inc.
- Hart, Oliver D & Kreps, David M, 1986. "Price Destabilizing Speculation," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 927-952, October.
- Hart, Oliver D. & Kreps, David M., 1986. "Price Destabilizing Speculation," Scholarly Articles 3448679, Harvard University Department of Economics.
- Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
- Stein, Jeremy C, 1987. "Informational Externalities and Welfare-Reducing Speculation," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1123-1145, December.
- Stein, Jeremy C., 1987. "Informational Externalities and Welfare-Reducing Speculation," Scholarly Articles 3660740, Harvard University Department of Economics.
- Jeffrey A. Frankel and Kenneth A. Froot., 1986. "Explaining the Demand for Dollars: International Rates of Return and the Expectations of Chartists and Fundamentalists," Economics Working Papers 8603, University of California at Berkeley.
- Frankel, Jeffrey A. & Froot, Kenneth A., 1986. "Explaining the Demand for Dollars: International Rates of Return and the Expectations of Chartists and Fundamentalists," Department of Economics, Working Paper Series qt26w957fs, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Robert Shiller, 1988. "Portfolio Insurance and Other Investor Fashions as Factors in the 1987 Stock Market Crash," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 287-297 National Bureau of Economic Research, Inc.
- Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-1151, September.
- Leland, Hayne & Rubinstein, Mark, 1988. "Comments on the Market Crash: Six Months After," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 45-50, Summer.
- Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
- Kenneth D. West, 1987. "Order Backlogs and Production Smoothing," NBER Working Papers 2385, National Bureau of Economic Research, Inc.
- John Y. Campbell & Albert S. Kyle, 1993. "Smart Money, Noise Trading and Stock Price Behaviour," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 1-34.
- Campbell, J.Y. & Kyle, A.S., 1988. "Smart Money, Noise Trading And Stock Price Behavior," Papers 95, Princeton, Department of Economics - Financial Research Center.
- John Y. Campbell & Albert S. Kyle, 1988. "Smart Money, Noise Trading and Stock Price Behavior," NBER Technical Working Papers 0071, National Bureau of Economic Research, Inc.
- Kyle, Albert & Campbell, John, 1993. "Smart Money, Noise Trading and Stock Price Behaviour," Scholarly Articles 3208217, Harvard University Department of Economics.
- Fischer Black, 1988. "An Equilibrium Model of the Crash," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 269-276 National Bureau of Economic Research, Inc.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
- Oliver D. Hart, 1977. "On The Profitability of Speculation," The Quarterly Journal of Economics, Oxford University Press, vol. 91(4), pages 579-597. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2880. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.