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14127_lec12habit - 14.127 Behavioral Economics. Lecture 12...

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14.127 Behavioral Economics. Lecture 12 Xavier Gabaix April 29, 2004
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0.1 Twin stocks She l landRoya lDutch–c la imsonthesamecompany There is a di f erence between prices The di f erence is driven by the di f
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0.2 Are noise traders eliminated from the market? DSSW setup E ( R NT R A )= E λ NT t λ A t ´ ( r + p t +1 p t (1 + r )) i = ρ (1+ r ) 2 ( ρ 2 + σ 2 ) 2 γµσ 2 ρ Might be both positive and negative If γ is large enough, then E ( R NT R A ) > 0 and noise traders prevail This is because noise traders are more optimistic and take more risk But by construction EU A >EU NT
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Stock returns look like a random walk [see slides] Evidence from stock splits – supports e cient market hypothesis [see slides] Event study methodology [see slides] Jensen: “The E
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This note was uploaded on 12/26/2011 for the course ECON 14.127 taught by Professor Staff during the Fall '10 term at MIT.

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14127_lec12habit - 14.127 Behavioral Economics. Lecture 12...

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