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Cited by 6,234

The DOI matches its Crossref record; 1 of the 1 references it cites were found in a registry or an index.

Noise Trader Risk in Financial Markets

Open access
De Long, J. Bradford, Shleifer, Andrei, Summers, Lawrence H., Waldmann, Robert J.·1990·Journal of Political Economy
DOI 10.1086/261703
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Abstract

We present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns. The unpredictability of noise traders' beliefs creates a risk in the price of the asset that deters rational arbitrageurs from aggressively betting against them. As a result, prices can diverge significantly from fundamental values even in the absence of fundamental risk. Moreover, bearing a disproportionate amount of risk that they themselves create enables noise traders to earn a higher expected return than rational investors do. The model sheds light on a number of financial anomalies, including the excess volatility of asset prices, the mean reversion of stock returns, the underpricing of closed-end mutual funds, and the Mehra-Prescott equity premium puzzle.

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Metadata

Authors
De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J.
Venue
Journal of Political Economy
Publisher
University of Chicago Press
Published
1990-08
Volume
98
Issue
4
Pages
703-738
ISSN
  • 0022-3808 (ISSN-L)
  • 1537-534X
DOI
10.1086/261703
OpenAlex
W2050643653
Cited by
6,234
References
1
FWCI
77.27
Type
journal article
Language
en
Open access
green

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