Goldstein, Itay, Ozdenoren, Emre and Yuan, Kathy (2013) Trading frenzies and their impact on real investment. Journal of Financial Economics, 109 (2). pp. 566-582. ISSN 0304-405X
Abstract
We study a model in which a capital provider learns from the price of a firm's security in deciding how much capital to provide for new investment. This feedback effect from the financial market to the investment decision gives rise to trading frenzies, in which speculators all wish to trade like others, generating large pressure on prices. Coordination among speculators is sometimes desirable for price informativeness and investment efficiency, but speculators' incentives push in the opposite direction, so that they coordinate exactly when it is undesirable. We analyze the effect of various market parameters on the likelihood of trading frenzies to arise.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.sciencedirect.com/science/journal/03044... |
| Additional Information: | © 2013 The Authors |
| Library of Congress subject classification: | H Social Sciences > HG Finance |
| Journal of Economic Literature Classification System: | G - Financial Economics > G0 - General |
| Sets: | Departments > Finance |
| Date Deposited: | 16 May 2013 12:25 |
| URL: | http://eprints.lse.ac.uk/50276/ |
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