Manipulating market sentiment

Michele Piccione*, Ran Spiegler

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We analyze a simple model of an asset market, in which a large rational trader interacts with "noise speculators"who seek short-run speculative gains, and become active following a prolonged episode of mispricing relative to the asset's fundamental value. The model gives rise to price patterns such as bubble dynamics, positive short-run correlation and vanishing long-run correlation of price deviations from the fundamental value. We argue that this example model sheds light on the question as to whether rational speculators abet or curb price fluctuations.

Original languageEnglish
Pages (from-to)370-373
Number of pages4
JournalEconomics Letters
Volume122
Issue number2
DOIs
StatePublished - Feb 2014

Funding

FundersFunder number
Seventh Framework Programme230251

    Keywords

    • Behavioral finance
    • Bounded rationality
    • G02
    • Price manipulation
    • Speculative trade
    • Trading rules

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