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Herd on the Street: Informational Inefficiencies in a Market with Short‐Term Speculation

Herd on the Street: Informational Inefficiencies in a Market with Short‐Term Speculation ABSTRACT Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e., can hold the asset forever. By contrast, we show that if speculators have short horizons, they may herd on the same information, trying to learn what other informed traders also know. There can be multiple herding equilibria, and herding speculators may even choose to study information that is completely unrelated to fundamentals. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Herd on the Street: Informational Inefficiencies in a Market with Short‐Term Speculation

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References (30)

Publisher
Wiley
Copyright
1992 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1992.tb04665.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e., can hold the asset forever. By contrast, we show that if speculators have short horizons, they may herd on the same information, trying to learn what other informed traders also know. There can be multiple herding equilibria, and herding speculators may even choose to study information that is completely unrelated to fundamentals.

Journal

The Journal of Finance – Wiley

Published: Sep 1, 1992

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