Speculative Dynamics and the Role of Feedback Traders
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NBER Working Paper No. 3243 (Also Reprint No. r1479)
Issued in January 1991
NBER Program(s): EFG ME
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.
Published: The American Economic Review, Vol. 80, No. 2, pp. 63-68, (May 1990).
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