Feedback Effect of Stock Prices on Fundamental Values: Price Manipulation and Herding with Rational Expectations

2000 ◽  
Author(s):  
Naveen Khanna ◽  
Ramana Sonti
Keyword(s):  
Stock Prices ◽  
Rational Expectations ◽  
Feedback Effect ◽  
Price Manipulation ◽  
Fundamental Values

Can Noise Traders Cause Persistent Deviations from Fundamental Values on the Stock Market? / Können Noise Trader langfristige Abweichungen der Aktienkurse von ihren Fundamentalwerten bewirken?

1999 ◽  
Vol 219 (5-6) ◽  
Author(s):  
Mathias Binswanger
Keyword(s):  
Stock Market ◽  
Future Development ◽  
Stock Prices ◽  
Rational Expectations ◽  
Price Volatility ◽  
High Price ◽  
Noise Traders ◽  
Noise Trader ◽  
Fundamental Value ◽  
Fundamental Values

SummaryModels which are built on the assumption of rational expectations can easily outline the conditions under which bubbles may exist but they remain silent on the factors that cause the price to deviate from the fundamental value. In this paper it is argued that dynamic extensions of the noise trader model of De Long et al. (1990a) may provide a behavioral explanation of persistent deviations of stock prices from their fundamental value if changing fundamentals and especially fundamental shocks are included. As a consequence the pattern and the sustainability of bubbles also depend on noise traders’ reaction to fundamental shocks. In the multi period extension of the noise trader model developed in the paper noise traders’ behavior is captured by two components. First, there is a fundamentally unwarranted optimism about the future development of dividends independent of the recent development of fundamentals. Second, noise traders overreact to an average of recent dividend shocks, which results in waves of optimism or pessimism that create high price volatility. The model shows that sustainable bubbles are slowly growing, while large overreactions to fundamental shocks will result in fast growing but frequently bursting bubbles.

Fundamental Value Hypothesis and Return Behavior: Evidence from Emerging Equity Markets

2006 ◽  
Vol 09 (01) ◽  
pp. 97-127 ◽  
Author(s):  
Benjamas Jirasakuldech ◽  
Riza Emekter ◽  
Peter Went
Keyword(s):  
Rational Expectations ◽  
Equity Markets ◽  
The Philippines ◽  
Duration Dependence ◽  
Test Results ◽  
Time Reversibility ◽  
Return Behavior ◽  
Price Patterns ◽  
Fundamental Value ◽  
Fundamental Values

This study examines the return behavior of 15 emerging equity markets for persistent deviations from the fundamental value hypothesis. The duration dependence test shows that rational expectations bubble do not cause deviations from fundamental value in any of the markets. Markov chain test results imply that markets in China, Malaysia, the Philippines, and Singapore deviate from their fundamental values due to non-random price changes. A price decrease is more likely to follow two periods of price decrease in these four equity markets. Finally, time reversibility test reveals that all equity markets, except for Jordan and Egypt, exhibit asymmetrical price patterns, suggesting departures from fundamental values.

Do US stock prices deviate from their fundamental values? Some new evidence

2003 ◽  
Vol 27 (4) ◽  
pp. 673-697 ◽  
Author(s):  
Maosen Zhong ◽  
Ali F. Darrat ◽  
Dwight C. Anderson
Keyword(s):  
Stock Prices ◽  
New Evidence ◽  
Fundamental Values

Regressive Oil Price Expectations Toward More Fundamental Values of the Oil Price

2010 ◽  
Vol 230 (4) ◽  
Author(s):  
Stefan Reitz ◽  
Jan-Christoph Rülke ◽  
Georg Stadtmann
Keyword(s):  
Random Walk ◽  
Rational Expectations ◽  
Forecast Accuracy ◽  
Oil Price ◽  
Economic Forecast ◽  
Roller Coaster ◽  
Price Expectations ◽  
Oil Market ◽  
Time Period ◽  
Fundamental Values

SummaryWe use oil price forecasts from the Consensus Economic Forecast poll for the time period Oct. 1989 - Dec. 2008 to analyze how forecasters form their expectations. Our findings indicate that the extrapolative as well as the regressive expectation formation hypothesis play a role. Standard measures of forecast accuracy reveal forecasters’ under performance relative to the random walk benchmark. We test the hypothesis of rational expectations by relying on the criteria of unbiasedness and orthogonality. Although both conditions are met, the forecast accuracy is significantly lower compared to naïve random walk forecast. The forecasters have problems to forecast the trends in the oil price. The recent roller-coaster movements in the international oil market have revealed forecasters’ inability to predict major trends in the spot oil price. As a consequence, some research institutes have stopped forecasting the oil price as an ingredient of their macroeconomic models and use a random walk forecast instead.

scholarly journals Stock Price Fluctuations and Corporate Forecasts Disclosure: Evidence from an Emerging Market

2014 ◽  
Vol 9 (1) ◽  
pp. 1481-1495
Author(s):  
Abbas Bagherian Kasgari ◽  
Keyvan Sheykhi
Keyword(s):  
Capital Market ◽  
Significant Relationship ◽  
Stock Prices ◽  
Stock Price ◽  
Emerging Market ◽  
Price Change ◽  
The Other ◽  
Price Fluctuations ◽  
Price Manipulation ◽  
New Information

This research investigates the relation between forecasting report disclosure and stock price fluctuations. The first hypothesize examine if there is a relation between two variables among companies which lead to fluctuation in the stock price and the second hypothesize examined these variables over research industries. Capital market reacts to new information in most cases- at least one month before the official date of the disclosure. We found evidence of fluctuation in stock prices before disclosure indicate that information was released to the market before official disclosure. In the other word, stock prices react to the unofficially released information and rumors to the market around the releasing new officially disclosure date. This fraudulent attempt was initiated by price manipulation in cases which we don't see significant price change during forecasted disclosure even if there are significant change in reported earning values. This investigation indicates that there is a significant relationship between releasing forecasted information and stock price fluctuations in the selected listed companies in TSE.

On the Possibility of Informative Equilibria in Futures Markets with Feedback

2019 ◽  
Vol 18 (3) ◽  
pp. 1521-1552
Author(s):  
Robert P Lieli ◽  
Augusto Nieto-Barthaburu
Keyword(s):  
Information Content ◽  
Rational Expectations ◽  
Futures Markets ◽  
Market Price ◽  
Feedback Effect ◽  
Binary Outcome ◽  
Future Event ◽  
Rational Expectations Equilibrium ◽  
Ex Ante ◽  
Existence Of Equilibria

AbstractWe study the existence of equilibria and the information content of prices in futures markets where the probability of future payoffs can be altered by an intervening agent who acts in response to the market price, hence creating a feedback effect. We focus on the market with the simplest possible structure: traders betting on the occurrence of a future event by buying or selling Arrow-Debreu securities (one dollar claims contingent on a binary outcome). We find that in the presence of feedback: (i) a rational expectations equilibrium may not exist; (ii) the market price may decline in response to information that is ex-ante more favorable to the occurrence of the underlying event; (iii) an equilibrium that reveals no information may obtain. Thus, feedback from an intervening agent materially alters the way in which price responds to information, and potentially undermines the viability of the market itself.

scholarly journals Crises boursières, bulles spéculatives et raitionalité économique

2005 ◽  
Vol 20 (4) ◽  
pp. 781-790
Author(s):  
Marie-Christine Adam ◽  
Ariane Szafarz
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Markets ◽  
Critical Analysis ◽  
Rational Expectations ◽  
Financial Analysts ◽  
Stock Market Crash ◽  
Speculative Bubble ◽  
The World

In October 1987 the stock markets across the world witnessed an unprecedent crash of which both economists and financial analysts are still trying to under-stand the origin. One of the most controversial interpretations of this event is the speculative bubble hypothesis according to which long overvalued stock prices readjusted to realistic values in october 87. This interpretation is particularly interesting given that new "bubble" theories have been developed within the framework of rational expectations models during the last ten years. This paper presents a critical analysis of these theories and evaluates their potential for our understanding of the stock market crash.

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