The Economic Consequences of Noise Traders

@article{DeLong1987TheEC,
  title={The Economic Consequences of Noise Traders},
  author={J. Bradford DeLong and Andrei Vasiliev Dmitry Shleifer and Lawrence H.l Summers and Robert J. Waldmann},
  journal={Capital Markets: Market Efficiency},
  year={1987}
}
The claim that financial markets are efficient is backed by an implicit argument that misinformed "noise traders" can have little influence on asset prices in equilibrium. If noise traders' beliefs are sufficiently different from those of rational agents to significantly affect prices, then noise traders will buy high and sell low. They will then lose money relative to rational investors and eventually be eliminated from the market. We present a simple overlapping-generations model of the stock… 

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