Journal Article10.1111/J.1540-6261.1996.TB02694.X
Non‐Fundamental Speculation
113
TL;DR: In this paper, the authors study an intertemporal asset market where insiders coexist with non-fundamental speculators and show that the entry of rational speculators can lead to reductions in market liquidity and in the information content of prices, even in an efficient market.
read more
Abstract: We study an intertemporal asset market where insiders coexist with “non-fundamental” speculators. Non-fundamental speculators possess no private information on fundamental values of assets, but have superior knowledge about some aspect of the market environment. We show that the entry of these (rational) speculators can lead to reductions in market liquidity and in the information content of prices, even in an efficient market. Also, equilibrium trades display patterns of empirical interest. For example, speculators appear to chase trends and lose money after market “overreactions,” while insiders trade as contrarians and profit after such overreactions.
read more
Chat with Paper
AI Agents for this Paper
Find similar papers on Google Scholar, PubMed and Arxiv
Write a critical review of this paper
Analyze citations of this paper to find unaddressed research gaps
Citations
•Book
The Microstructure Approach to Exchange Rates
Richard K. Lyons
- 01 Dec 2001
TL;DR: In this paper, the authors focus on the economics of financial information and how microstructure tools help to clarify the types of information most relevant to exchange rates, and show how exchange-rate behavior previously thought to be particularly puzzling can be explained using the micro-structure approach.
•Posted Content
Liquidity and Asset Prices
TL;DR: In this paper, the authors review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories and find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics.
628
•Book
Liquidity and Asset Prices
Yakov Amihud,Haim Mendelson,Lasse Heje Pedersen +2 more
- 01 Dec 2005
TL;DR: In this paper, the authors review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories and find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics.
574
•Posted Content
Liquidity and Asset Prices
TL;DR: In this paper, the authors review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories and find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics.
457
Is There Private Information in the FX Market? The Tokyo Experiment
TL;DR: In this article, the introduction of trading in Tokyo over the lunch-hour was shown to increase the volatility of the foreign exchange market, which cannot be due to public information since the flow of public information did not change with the trading rules.
References
•Posted Content
On the Impossibility of Informationally Efficient Markets
TL;DR: In this paper, the authors propose a model in which there is an equilibrium degree of disequilibrium: prices reflect the information of informed individuals (arbitrageurs) but only partially, so that those who expend resources to obtain information do receive compensation.
7.7K
A Theory of Intraday Patterns: Volume and Price Variability
Anat R. Admati,Paul Pfleiderer +1 more
TL;DR: In this paper, the authors developed a theory that concentrated trading patterns arise endogenously as a result of the strategic behavior of liquidity traders and informed traders and provided a partial explanation for some of the recent empitical findings concerning the patterns of volume and price variability in intraday transaction data.
Sequential Sales, Learning, and Cascades
TL;DR: In this article, the authors consider a scenario in which an issuer is selling a new security of uncertain value, for example, an initial public offering (IPO) of stock or high-yield debt, through an underwriter.
1.4K
Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation
TL;DR: The authors show that if speculators have short horizons, they may herd on the same information, trying to learn what other informed traders also know, and there can be multiple herding equilibria, and speculators may even choose to study information that is completely unrelated to fundamentals.