RANDOM WALKS, LEMMINGS, AND BEHAVIORISM; THE SEARCH FOR A MARKET LODESTAR

Per the Efficient Market Hypothesis, all new information concerning a corporation and its performance is quickly assimilated into its share price. Hence, the assiduous investor who ferrets out "fresh" news will be nonplussed, as that information is already accounted for in the stock's price. With no reward to revelation, the standard recourse is investment in a representative market basket and a wait for "lightning" to strike already-held shares. However, recent market bubbles (Nasdaq, 2000-01)and lemming-like rushes to the sea of profit, suggest that irrational investor behavior creates inefficient, unpredictable markets. The irony is that, the internet, which provides the investor with near-perfect information, also helps create inefficiencies by nurturing in the investor, a sense of hubris and false superiority which results in under and overreaction, overinvesting, and market volatility.


Issue Date:
2001
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/32016
PURL Identifier:
http://purl.umn.edu/32016
Total Pages:
14
Series Statement:
Economics Staff Paper 2001-3




 Record created 2017-04-01, last modified 2018-01-22

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