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oai:recercat.cat:10230/338822025-12-24T02:05:37Zcom_2072_6col_2072_452953

Dual decision processes and noise trading Cerigioni, Francesco Universitat Pompeu Fabra. Departament d'Economia i Empresa asset pricing dual processes noise trading underreaction overreaction equity-premium puzzle Behavioral and Experimental Economics Evidence from nancial markets suggests that asset prices can be consistently far from their funda- mental value. Prices seem to underreact to news in the short-run and overreact in the long-run. In this paper, we use Dual Process Theory to describe traders behavior. In particular, a part of traders holds wrong beliefs anytime the market environment does not change suciently. The proportion of traders with wrong beliefs will depend on how similar past market environments are with the present one. We show that such model not only can be seen as a way of endogenizing noise trading, but also provides a justication for noise traders' beliefs and it shows that underreaction and overreaction naturally arise in such framework. Finally, we discuss how the model might help understanding the emergence of the equity-premium puzzle and its variation through time. 2018-02-14T15:29:59Z 2018-02-14T15:29:59Z 2016-09-14 2017-07-23T02:18:21Z info:eu-repo/semantics/workingPaper https://econ-papers.upf.edu/ca/paper.php?id=1553 http://hdl.handle.net/10230/33882 eng Economics and Business Working Papers Series; 1553 L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons http://creativecommons.org/licenses/by-nc-nd/3.0/es/ info:eu-repo/semantics/openAccess application/pdf application/pdf