The Impact of Momentum Trading on the Market Price and Trades

Katsumasa Nishide

Chapter 8 in Recent Advances in Financial Engineering, 2009, pp 135-159 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis paper theoretically analyzes a financial market with momentum trading in a market microstructure framework, and investigates how momentum trading affects the market price and trades. When momentum traders dominate the market, private information owned by rational traders may not be incorporated into the price, and a market bubble may occur. It is shown that the reliability of a firm's public announcement such as an earnings forecast is a key factor to avert the market bubble.

Keywords: Financial Engineering; Mathematical Finance; Real Options; Credit Risk; Option Pricing; Transaction Cost; Market Microstructure (search for similar items in EconPapers)
Date: 2009
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