Noise Traders and Herding Behavior

Author/Editor:

Lee Scott Redding

Publication Date:

September 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Recent developments in financial economics have included many explorations into market microstructure, that is, the internal functioning of markets and the ways in which they provide liquidity to traders. An important contribution of this literature is that prices can deviate from their fundamental values. This paper describes models of imperfect liquidity and improperly processed information in financial markets, focusing on the noise trader and investor herding literature. The motivations for this line of research are presented, followed by a description of some of the major contributions and tests of some of their empirical implications.

Series:

Working Paper No. 1996/104

Subject:

Asset and liability management Asset prices Asset valuation Financial institutions Liquidity Prices Securities Stocks

English

Publication Date:

September 1, 1996

ISBN/ISSN:

9781451947960/1018-5941

Stock No:

WPIEA1041996

Pages:

16

Please address any questions about this title to publications@imf.org