Asset Price Dynamics and Infrequent Feedback Trades
Giuseppe Bertola and
Journal of Finance, 1995, vol. 50, issue 5, 1747-66
This article combines the continuous arrival of information with the infrequency of trades and investigates the effects on asset price dynamics of positive- and negative-feedback trading. Specifically, the authors model an economy where stocks and bonds are traded by two types of agents: speculators who maximize expected utility and feedback traders who mechanically respond to price changes and infrequently submit market orders. They show that positive-feedback strategies increase the volatility of stock returns and the response of stock prices to dividend news. Conversely, the presence of negative-feedback traders makes stock returns less volatile and prices less responsive to dividends. Copyright 1995 by American Finance Association.
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