Events

Prof. Lasse Heje Pedersen
Copenhagen Business School

I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade securities over time: naive investors who learn via a social network, “fanatics” possibly spreading fake news, rational short-term investors, and long-term investors. The model implies echo-chamber effects, long-term disagreement, and that all investor beliefs converge to a combination of rational and fanatic views. Securities markets exhibit bubbles, excess volatility, bursts of high volume, price momentum, fundamental momentum, and reversal. As an application of the model, I present empirical evidence on the GameStop stock, and discuss broader economic implications.