IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Meta-Communication and Market Dynamics. Reflexive Interactions of Financial Markets and the Mass Media

  • Thomas Schuster

    (Leipzig University)

A widely held belief in financial economics suggests that stock prices always adequately reflect all available information. Price movements away from fundamentals are assumed to occur only infrequently, if at all. „False“ prices are supposed to be corrected by the counter-actions of „rational“ investors reestablishing equilibrium. However, empirical evidence of widespread irrationality among investors as well as theoretical insights into the properties of complex systems suggest that this view is too static. In fact, it can be shown that under certain conditions dynamic disequilibria have a considerable probability of being „locked in“. The mass media play no mean role in this: By conditioning trend-following behavior and fostering coordination among large numbers of investors, the media can help bring about such destabilizing moves. Media attention can induce positive feedback by increasing the level of excess noise in the market while decreasing the number of perceived behavioral options. Meta-communication thus generated is a prime source of instability in financial markets.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econwpa.repec.org/eps/fin/papers/0307/0307014.pdf
Download Restriction: no

Paper provided by EconWPA in its series Finance with number 0307014.

as
in new window

Length: 36 pages
Date of creation: 28 Jul 2003
Date of revision:
Handle: RePEc:wpa:wuwpfi:0307014
Note: Type of Document - ; prepared on PC; pages: 36
Contact details of provider: Web page: http://econwpa.repec.org

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.:

as in new window
  1. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
  2. Stephen Morris & Hyun Song Shin, 2001. "The CNBC Effect: Welfare Effects of Public Information," Cowles Foundation Discussion Papers 1312, Cowles Foundation for Research in Economics, Yale University.
  3. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1991. "Speculative Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 529-46, May.
  4. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
  5. Pearce, Douglas K & Roley, V Vance, 1985. "Stock Prices and Economic News," The Journal of Business, University of Chicago Press, vol. 58(1), pages 49-67, January.
  6. Robert J. Shiller, 2002. "From Efficient Market Theory to Behavioral Finance," Cowles Foundation Discussion Papers 1385, Cowles Foundation for Research in Economics, Yale University.
  7. Paul A. Samuelson, 1998. "Summing up on business cycles: opening address," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 33-36.
  8. Jeffrey C. Fuhrer & Scott Schuh, 1998. "Beyond shocks: what causes business cycles?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun).
  9. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1991. "The Survival of Noise Traders in Financial Markets," Scholarly Articles 3725470, Harvard University Department of Economics.
  10. Czarnitzki, Dirk & Stadtmann, Georg, 2000. "The behaviour of noise traders: empirical evidence on purchases of business magazines," ZEW Discussion Papers 00-65, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Shareen Joshi & Jeffrey Parker & Mark A. Bedau, 1998. "Technical Trading Creates a Prisoner's Dilemma: Results from an Agent-Based Model," Research in Economics 98-12-115e, Santa Fe Institute.
  12. Gur Huberman, 2001. "Contagious Speculation and a Cure for Cancer: A Nonevent that Made Stock Prices Soar," Journal of Finance, American Finance Association, vol. 56(1), pages 387-396, 02.
  13. Garber, Peter M, 1989. "Tulipmania," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 535-60, June.
  14. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
  15. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May.
  16. Eli Ofek & Matthew Richardson, 2001. "DotCom Mania: The Rise and Fall of Internet Stock Prices," NBER Working Papers 8630, National Bureau of Economic Research, Inc.
  17. Friedman, Daniel, 1991. "Evolutionary Games in Economics," Econometrica, Econometric Society, vol. 59(3), pages 637-66, May.
  18. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
  19. J. Doyne Farmer & Andrew W. Lo, 1999. "Frontiers of Finance: Evolution and Efficient Markets," Working Papers 99-06-039, Santa Fe Institute.
  20. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1989. "The Size and Incidence of the Losses from Noise Trading," Journal of Finance, American Finance Association, vol. 44(3), pages 681-696, 07.
  21. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
  22. Eli Ofek & Matthew Richardson, 2002. "The Valuation and Market Rationality of Internet Stock Prices," Oxford Review of Economic Policy, Oxford University Press, vol. 18(3), pages 265-287.
  23. W. Brian Arthur & John H. Holland & Blake LeBaron & Richard Palmer & Paul Taylor, 1996. "Asset Pricing Under Endogenous Expectation in an Artificial Stock Market," Working Papers 96-12-093, Santa Fe Institute.
  24. J. Doyne Farmer, 1999. "Market Force, Ecology, and Evolution," Computing in Economics and Finance 1999 651, Society for Computational Economics.
  25. Peter M. Garber, 2001. "Famous First Bubbles: The Fundamentals of Early Manias," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262571536, June.
  26. Garber, Peter M, 1990. "Famous First Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 35-54, Spring.
  27. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring.
  28. Michael J. Mauboussin, 2002. "Revisiting Market Efficiency: The Stock Market As A Complex Adaptive System," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(4), pages 47-55.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0307014. 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: (EconWPA)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.