Manipulating market sentiment |
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Authors: | Michele Piccione Ran Spiegler |
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Institution: | 1. London School of Economics, United Kingdom;2. Tel Aviv University, Israel;3. University College London, United Kingdom;4. CFM, United Kingdom |
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Abstract: | We analyze a simple model of an asset market, in which a large rational trader interacts with “noise speculators” who seek short-run speculative gains, and become active following a prolonged episode of mispricing relative to the asset’s fundamental value. The model gives rise to price patterns such as bubble dynamics, positive short-run correlation and vanishing long-run correlation of price deviations from the fundamental value. We argue that this example model sheds light on the question as to whether rational speculators abet or curb price fluctuations. |
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Keywords: | G02 |
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