The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Asset Price Dynamics and Infrequent Feedback Trades
Published: 12/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb05196.x
PIERLUIGI BALDUZZI, GIUSEPPE BERTOLA, SILVERIO FORESI
This article combines the continuous arrival of information with the infrequency of trades, and investigates the effects on asset price dynamics of positive and negative‐feedback trading. Specifically, we model an economy where stocks and bonds are traded by two types of agents: speculators who maximize expected utility, and feedback traders who mechanically respond to price changes and infrequently submit market orders. We show that positive‐feedback strategies increase the volatility of stock returns, and the response of stock prices to dividend news. Conversely, the presence of negative‐feedback traders makes stock returns less volatile, and prices less responsive to dividends.