Positive Feedback Investment Strategies and Destabilizing Rational Speculation

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Positive Feedback Investment Strategies and Destabilizing Rational Speculation

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Title: Positive Feedback Investment Strategies and Destabilizing Rational Speculation
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. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann. "Positive feedback investment strategies and destabilizing rational speculation." the Journal of Finance 45, no. 2 (1990): 379-395. doi:10.1111/j.1540-6261.1990.tb03695.x
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Abstract: Analyses of the role of rational speculators in financial markets usually presume that such investors dampen price fluctuations by trading against liquidity or noise traders. This conclusion does not necessarily hold when noise traders follow positive-feedback investment strategies buy when prices rise and sell when prices fall. In such cases, it may pay rational speculators to try to jump on the bandwagon early and to purchase ahead of noise trader demand. If rational speculators' attempts to jump on the bandwagon early trigger positive-feedback investment strategies, then an increase in the number of forward-looking rational speculators can lead to increased volatility of prices about fundamentals.
Published Version: doi:10.1111/j.1540-6261.1990.tb03695.x
Other Sources: http://www.nber.org/papers/w2880
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:27693805
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