Noise and Long-Term Arbitrage: a Multi-Generation Overlapping Noise Trade Model
This paper extends the overlapping generation noise trade model developed by De Long et al. (1990) to the multi-generation overlapping case§to investigate rational traders’ long-term arbitrage,and the impact of noise traders on the market in this case. Long-term arbitrage is an amendment to the short-term arbitrage,which makes the arbitrage rational in the long run. Di_erent from short-term arbitrage,rational traders’ long-term arbitrage is determined by the variation,but not the deviation,of price. Hence long-term arbitrage has no e_ect on alleviating the impact of noise traders directly,and can only reduce the risk premium of risk asset. Moreover,long-term arbitrage is limited in size,even if rational traders have infinite chances to arbitrage. So long-term arbitrage can only reduce the noise traders’ relatively-gainmore space slightly,but not eliminate it. Therefore,rational traders’ long-term arbitrage can’t eliminate noise from the market.
Noise trade Overlapping generation Dynamic optimization Limited arbitrage
许云辉 李仲飞
中山大学岭南学院，广州，510275
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）