Noise Trader Risk in Financial Markets Export

@article{citeulike:185950, abstract = {We present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns. The unpredictability of noise traders' beliefs creates a risk in the price of the asset that deters rational arbitrageurs from aggressively betting against them. As a result, prices can diverge significantly from fundamental values even in the absence of fundamental risk. Moreover, bearing a disproportionate amount of risk that they themselves create enables noise traders to earn a higher expected return than rational investors do. The model sheds light on a number of financial anomalies, including the excess volatility of asset prices, the mean reversion of stock returns, the underpricing of closed-end mutual funds, and the Mehra-Prescott equity premium puzzle.}, author = {Delong, Bradford J. and Shleifer, Andrei and Summers, Lawrence H. and Waldmann, Robert J.}, citeulike-article-id = {185950}, citeulike-linkout-0 = {http://dx.doi.org/10.2307/2937765}, citeulike-linkout-1 = {http://www.jstor.org/stable/2937765}, doi = {10.2307/2937765}, journal = {The Journal of Political Economy}, keywords = {behaviour, emh, expectations, finance, microstructure, momentum, noise}, number = {4}, pages = {703--738}, posted-at = {2008-07-30 10:54:25}, priority = {5}, title = {Noise Trader Risk in Financial Markets}, url = {http://dx.doi.org/10.2307/2937765}, volume = {98}, year = {1990} }

TY - JOUR ID - citeulike:185950 L3 - citeulike-article-id:185950 N2 - We present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns. The unpredictability of noise traders' beliefs creates a risk in the price of the asset that deters rational arbitrageurs from aggressively betting against them. As a result, prices can diverge significantly from fundamental values even in the absence of fundamental risk. Moreover, bearing a disproportionate amount of risk that they themselves create enables noise traders to earn a higher expected return than rational investors do. The model sheds light on a number of financial anomalies, including the excess volatility of asset prices, the mean reversion of stock returns, the underpricing of closed-end mutual funds, and the Mehra-Prescott equity premium puzzle. IS - 4 JF - The Journal of Political Economy EP - 738 TI - Noise Trader Risk in Financial Markets VL - 98 SP - 703 KW - behaviour KW - emh KW - expectations KW - finance KW - microstructure KW - momentum KW - noise AU - Delong, Bradford AU - Shleifer, Andrei AU - Summers, Lawrence AU - Waldmann, Robert PY - 1990/// UR - http://dx.doi.org/10.2307/2937765 ER -