Chapter

Positive Feedback Investment Strategies

Andrei Shleifer

in Inefficient Markets

Published in print March 2000 | ISBN: 9780198292272
Published online November 2003 | e-ISBN: 9780191596933 | DOI: http://dx.doi.org/10.1093/0198292279.003.0006

Series: Clarendon Lectures in Economics

Positive Feedback Investment Strategies

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Expands the idea that rational arbitrage not only may be limited in bringing about market efficiency but may actually generate price bubbles and make markets less efficient. It begins by presenting an alternative view of price patterns observed in the data on security returns—one based on feedback trading. It also describes the interactions of noise traders and arbitrageurs and shows that in cases in which arbitrageurs trade in anticipation of noise trader demand, they move the price away from rather than towards fundamental values.

Keywords: arbitrage; fundamentals; market efficiency; noise trader; positive feedback trading; price bubbles; security price

Chapter.  7196 words.  Illustrated.

Subjects: Financial Markets

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