The Beauty Contest and Short-Term Trading
Giovanni Cespa and
Xavier Vives
Journal of Finance, 2015, vol. 70, issue 5, 2099-2154
Abstract:
type="main">
Short-termism need not breed informational price inefficiency even when generating beauty contests. We demonstrate this claim in a two-period market with persistent liquidity trading and risk-averse, privately informed, short-term investors and find that prices reflect average expectations about fundamentals and liquidity trading. Informed investors engage in “retrospective” learning to reassess inferences (about fundamentals) made during the trading game's early stages. This behavior introduces strategic complementarities in the use of information and can yield two stable equilibria that can be ranked in terms of liquidity, volatility, and informational efficiency. We derive implications that explain market anomalies as well as empirical regularities.
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (40)
Downloads: (external link)
http://hdl.handle.net/10.1111/jofi.12279 (text/html)
Access to full text is restricted to subscribers.
Related works:
Working Paper: The Beauty Contest and Short-Term Trading (2014) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:70:y:2015:i:5:p:2099-2154
Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp
Access Statistics for this article
More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().