Does trend-chasing explain financial markets?

By Noah Smith – That’s why this 2012 paper (pdf) by Andrei Shleifer and Robin Greenwood is so interesting. They take an extremely simple approach toward measuring people expectations: Just ask people what they think is going to happen! Actually, what they do is to take data from six different surveys of the stock market expectations of individual investors.

When recent returns have been high, people expect the recent “trend” to continue, and buy accordingly. Trend-chasing – and causes of trend-chasing, such as herd behavior – has received a fair amount of attention in the behavioral literature, though perhaps not as much as it should. more>


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s