Chasing noise

Brock Mendel and Andrei Shleifer

Journal of Financial Economics, 2012, vol. 104, issue 2, 303-320

Abstract: 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.

Keywords: Insiders; Sentiment; Informed trading (search for similar items in EconPapers)
JEL-codes: D84 G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Chasing Noise (2012)
Working Paper: Chasing Noise (2010)
Working Paper: Chasing Noise
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:104:y:2012:i:2:p:303-320

DOI: 10.1016/j.jfineco.2011.02.018

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