Manipulating market sentiment

Michele Piccione and Ran Spiegler (rani@tauex.tau.ac.il)

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: behavioral finance; price manipulation; bounded rationality; trading rules; speculative trade (search for similar items in EconPapers)
JEL-codes: F3 G3 J1 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

Published in Economics Letters, 2014, 122(2), pp. 370-373. ISSN: 0165-1765

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Journal Article: Manipulating market sentiment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:55631

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