The Survival of Noise Traders in Financial Markets

25 Pages Posted: 8 Jan 2008

See all articles by J. Bradford DeLong

J. Bradford DeLong

University of California, Berkeley; Federal Reserve Bank of San Francisco; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Lawrence H. Summers

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

Robert Waldmann

Universita di Roma Tor Vergata; National Bureau of Economic Research (NBER)

Date Written: September 1988

Abstract

We use the revised estimates of U.S. GNP constructed by Christina Romer (1989) to assess the time-series properties of U.S. output per capita over the past century. We reject at conventional significance levels the null that output is a random walk in favor of the alternative that output is a stationary autoregressive process about a linear deterministic trend. The difference between the lack of persistence of output shocks either before WWII or over the entire century, on the one hand, and the strong signs of persistence of output shocks found by Campbell and Mankiw (1987) and by Nelson and Plosser (1982) for more recent periods is striking. It suggests to us a Keynesian interpretation of the large unit root in post-WWII U.S. output: perhaps post-WWII output shocks appear persistent because automatic stabilizers and other demand-management policies have substantially damped the transitory fluctuations that made up the pre-WWH Bums-Mitchell business cycle.

Suggested Citation

DeLong, James Bradford and Shleifer, Andrei and Summers, Lawrence H. and Waldmann, Robert, The Survival of Noise Traders in Financial Markets (September 1988). NBER Working Paper No. w2715. Available at SSRN: https://ssrn.com/abstract=467566

James Bradford DeLong (Contact Author)

University of California, Berkeley ( email )

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Andrei Shleifer

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Lawrence H. Summers

Harvard University ( email )

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Robert Waldmann

Universita di Roma Tor Vergata ( email )

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