Template-Type: ReDIF-Paper 1.0

Author-Name: Lutz G. Arnold
Author-X-Name-First: Lutz G.  
Author-X-Name-Last: Arnold

Author-Name: Stephan Brunner
Author-X-Name-First: Stephan
Author-X-Name-Last: Brunner

Title: Is Rational Speculation in the Presence of Positive Feedback Traders Destabilizing?
	
Abstract: DeLong (1990a) et al. show that in the presence of positive feedback traders rational speculation
can be destabilizing, in that it drives the price of a risky asset above its expected value. A
generalization of their seminal model with additional trading dates and an additional informative
signal yields further interesting insights: it helps clarify when prices overreact, underreact, or
even move in the "wrong" direction; when rational speculation is destabilizing or stabilizing; and
whether overreaction is a symptom of market inefficiency or a manifestation of informational
efficiency.

Length:  20 pages
Creation-Date:  2012-06
File-URL: http://www.bgpe.de/texte/DP/119_ArnoldBrunner.pdf
File-Format: Application/pdf
File-Function: First version, 2012
Number: 119
Classification-JEL: G12, G14
Keywords: market efficiency, positive feedback trading
Handle: RePEc:bav:wpaper:119_ArnoldBrunner