Journal of Finance Vol. 50 No. 5 1995
Asset Price Dynamics and Infrequent Feedback Trades.
Abstract
This article combines the continuous arrival of information with the infrequency of trades and investigates the effects on asset price dynamics of positive- and negative-feedback trading. Specifically, the authors model an economy where stocks and bonds are traded by two types of agents: speculators who maximize expected utility and feedback traders who mechanically respond to price changes and infrequently submit market orders. They show that positive-feedback strategies increase the volatility of stock returns and the response of stock prices to dividend news. Conversely, the presence of negative-feedback traders makes stock returns less volatile and prices less responsive to dividends.
- Volume
- 50
- Issue
- 5
- Pages
- 1747-66
- Sources
- bibtex:phds-export.bib