Journal of Financial Economics Vol. 104 No. 2 2012
Chasing noise
open access
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.
- DOI
- 10.1016/j.jfineco.2011.02.018
- Volume
- 104
- Issue
- 2
- Pages
- 303-320
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref