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| Author: | Campbell, J. Kyle, A. |
| Title: | Smart money, noise trading and stock price behaviour |
| Journal: | Review of Economic Studies
1993 : JAN, VOL. 60(1):202, p. 1-34 |
| Index terms: | SHARE PRICES MONEY NOISE TRADE |
| Language: | eng |
| Abstract: | This paper estimates an equilibrium model of stock price behaviour in which changes in exponentially de-trended dividends and prices are normally distributed and exogenous "noise traders" interact with "smart-money" investors who have constant absolute risk aversion. The model can explain the volatility and predictability of U.S. stock returns in the period 1871-1986 using either a low discount rate (4% or below) and a large constant risk discount on the stock price, or a higher discount rate (5% or above) and noise trading correlated with fundamentals. The data are not well able to distinguish between these explanations. |
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