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Speculative Dynamics and the Role of Feedback Traders

David M. Cutler, James M. Poterba, Lawrence H. Summers

NBER Working Paper No. 3243 (Also Reprint No. r1479)
Issued in January 1990
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

This paper summarizes our earlier research documenting the characteristic speculative dynamics of many asset markets and suggests a framework for understanding them. Our model incorporates "feedback traders," traders whose demand is based on the history of past returns rather than the expectation of future fundamentals. We use this framework to describe ways in which the characteristic return patterns might be generated, and also to address the long-standing question of whether profitable speculation stabilizes asset markets.

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Document Object Identifier (DOI): 10.3386/w3243

Published: The American Economic Review, Vol. 80, No. 2, pp. 63-68, (May 1990). citation courtesy of

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