Speculative Dynamics and the Role of Feedback Traders

18 Pages Posted: 4 Jul 2004 Last revised: 27 Sep 2008

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: January 1990

Abstract

This paper summarizes our earlier research documenting the characteristic speculative dynamics of many asset markets and suggests a framework for understanding them. Our model incorporates "feedback traders," traders whose demand is based on the history of past returns rather than the expectation of future fundamentals. We use this framework to describe ways in which the characteristic return patterns might be generated, and also to address the long-standing question of whether profitable speculation stabilizes asset markets.

Suggested Citation

Cutler, David M. and Poterba, James M. and Summers, Lawrence H., Speculative Dynamics and the Role of Feedback Traders (January 1990). NBER Working Paper No. w3243. Available at SSRN: https://ssrn.com/abstract=318305

David M. Cutler

Harvard University - Department of Economics ( email )

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James M. Poterba (Contact Author)

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Lawrence H. Summers

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National Bureau of Economic Research (NBER)

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Harvard University - Harvard Kennedy School (HKS) ( email )

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Cambridge, MA 02138
United States

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