Market panics, frenzies, and informational efficiency: Theory and experiment
By: Kendall, Chad
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Material type: 
BookPublisher: American Economic Journal Microeconomics Description: 12(3), Aug, 2020: p. 76-115.Subject(s): Information and Market Efficiency; Event Studies; Insider Trading
In:
American Economic Journal MicroeconomicsSummary: In a market rush, the fear of future adverse price movements causes traders to trade before they become well informed, reducing the informational efficiency of the market. I derive theoretical conditions under which market rushes are equilibrium behavior and study how well these conditions organize trading behavior in a laboratory implementation of the model. Market rushes, including both panics and frenzies, occur more frequently when predicted by theory. However, subjects use commonly discussed, momentum-like strategies that lead to informational losses not predicted by theory, suggesting that these strategies may exacerbate both the occurrence and consequences of panics and frenzies. - Reproduced
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 12(3), Aug, 2020: p. 76-115 | Available | AR124170 |
In a market rush, the fear of future adverse price movements causes traders to trade before they become well informed, reducing the informational efficiency of the market. I derive theoretical conditions under which market rushes are equilibrium behavior and study how well these conditions organize trading behavior in a laboratory implementation of the model. Market rushes, including both panics and frenzies, occur more frequently when predicted by theory. However, subjects use commonly discussed, momentum-like strategies that lead to informational losses not predicted by theory, suggesting that these strategies may exacerbate both the occurrence and consequences of panics and frenzies. - Reproduced
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