Chasing Noise

We present a simple model in which rational but uninformed traders occasionally chase noise as if it were information, thereby amplifying sentiment shocks and moving prices away from fundamental values. In the model, noise traders can have an impact on market equilibrium disproportionate to their size in the market. The model offers a partial explanation for the surprisingly low market price of financial risk in the spring of 2007.

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Year of publication:	2012
Authors:	Mendel, Brock ; Shleifer, Andrei
Institutions:	Department of Economics, Harvard University

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Extent:	application/pdf
Series:	Scholarly Articles.
Type of publication:	Book / Working Paper
Notes:	Published in Journal of Financial Economics
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010859050