Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support

Positive Feedback Investment Strategies and Destabilizing Rational Speculation

J. Bradford de Long, Andrei Shleifer, Lawrence H. Summers and Robert J. Waldmann
The Journal of Finance
Vol. 45, No. 2 (Jun., 1990), pp. 379-395
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328662
Stable URL: http://www.jstor.org/stable/2328662
Page Count: 17
  • Read Online (Free)
  • Download ($33.95)
  • Cite this Item
If you need an accessible version of this item please contact JSTOR User Support
Positive Feedback Investment Strategies and Destabilizing Rational Speculation
Preview not available

Abstract

Analyses of rational speculation usually presume that it dampens fluctuations caused by "noise" traders. This is not necessarily the case if noise traders follow positive-feedback strategies--buy when prices rise and sell when prices fall. It may pay to jump on the bandwagon and purchase ahead of noise demand. If rational speculators' early buying triggers positive-feedback trading, then an increase in the number of forward-looking speculators can increase volatility about fundamentals. This model is consistent with a number of empirical observations about the correlation of asset returns, the overreaction of prices to news, price bubbles, and expectations.

Page Thumbnails

  • Thumbnail: Page 
379
    379
  • Thumbnail: Page 
380
    380
  • Thumbnail: Page 
381
    381
  • Thumbnail: Page 
382
    382
  • Thumbnail: Page 
383
    383
  • Thumbnail: Page 
384
    384
  • Thumbnail: Page 
385
    385
  • Thumbnail: Page 
386
    386
  • Thumbnail: Page 
387
    387
  • Thumbnail: Page 
388
    388
  • Thumbnail: Page 
389
    389
  • Thumbnail: Page 
390
    390
  • Thumbnail: Page 
391
    391
  • Thumbnail: Page 
392
    392
  • Thumbnail: Page 
393
    393
  • Thumbnail: Page 
394
    394
  • Thumbnail: Page 
395
    395