We study an intertemporal asset market where insiders coexist with “non-fundamental” speculators. Non-fundamental speculators possess no private information on fundamental values of assets, but have superior knowledge about some aspect of the market environment. We show that the entry of these (rational) speculators can lead to reductions in market liquidity and in the information content of prices, even in an efficient market. Also, equilibrium trades display patterns of empirical interest. For example, speculators appear to chase trends and lose money after market “overreactions,” while insiders trade as contrarians and profit after such overreactions.
If you can't find a tool you're looking for, please click the link at the top of the page to "Go to old article view". Alternatively, view our Knowledge Base articles for additional help. Your feedback is important to us, so please let us know if you have comments or ideas for improvement.