Chasing Noise

Brock Mendel and Andrei Shleifer

Scholarly Articles from Harvard University Department of Economics

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.

Date: 2012
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Citations: View citations in EconPapers (13)

Published in Journal of Financial Economics

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http://dash.harvard.edu/bitstream/handle/1/10859950/44265251.pdf (application/pdf)

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Journal Article: Chasing noise (2012)
Working Paper: Chasing Noise (2010)
Working Paper: Chasing Noise
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:10859950

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