The Size and Incidence of the Losses from Noise Trading

DSpace/Manakin Repository

The Size and Incidence of the Losses from Noise Trading

Citable link to this page


Title: The Size and Incidence of the Losses from Noise Trading
Author: De Long, J. Bradford; Shleifer, Andrei; Summers, Lawrence H.; Waldmann, Robert J.

Note: Order does not necessarily reflect citation order of authors.

Citation: De Long, J., J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann. 1989. “The Size and Incidence of the Losses from Noise Trading.” The Journal of Finance 44 (3) (July): 681–696. Portico. doi:10.1111/j.1540-6261.1989.tb04385.x.
Full Text & Related Files:
Abstract: Recent empirical research has identified a significant amount of volatility in stock prices that cannot be easily explained by changes in fundamentals; one interpretation is that asset prices respond not only to news but also to irrational "noise trading." We assess the welfare effects and incidence of such noise trading using an overlapping-generations model that gives investors short horizons. We find that the additional risk generated by noise trading can reduce the capital stock and consumption of the economy, and we show that part of that cost may be borne by rational investors. We conclude that the welfare costs of noise trading may be large if the magnitude of noise in aggregate stock prices is as large as suggested by some of the recent empirical literature on the excess volatility of the market.
Published Version: doi:10.1111/j.1540-6261.1989.tb04385.x
Other Sources:
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at
Citable link to this page:
Downloads of this work:

Show full Dublin Core record

This item appears in the following Collection(s)


Search DASH

Advanced Search