The Survival of Noise Traders in Financial Markets

J. Bradford De Long, Andrei Shleifer, Lawrence Summers and Robert Waldmann ()

Scholarly Articles from Harvard University Department of Economics

Abstract: The authors present a model of portfolio allocation by noise traders with incorrect expectations about return variances. For such misperceptions, noise traders who do not affect prices can earn higher expected returns than rational investors with similar risk aversion. Moreover, such noise traders can come to dominate the market in that the probability that they eventually have a high share of total wealth is close to one. Noise traders come to dominate despite their taking of excessive risk and their higher consumption. The authors conclude that the case against their long-run viability is not as clear-cut as is commonly supposed.

Date: 1991
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Published in Journal of Business -Chicago-

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Related works:
Journal Article: The Survival of Noise Traders in Financial Markets (1991)
Working Paper: The Survival of Noise Traders in Financial Markets (1988)
Working Paper: The Survival of Noise Traders in Financial Markets
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