Behavioral Economics and Finance (Mathematics & Economics Essay)

Behavioral Economics and Finance
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In class this week, we saw several different arguments for why noise traders either should not exist, or should be irrelevant. We also saw some examples that suggest they might exist, and a model that purports to explain why. Based on what we’ve learned so far, how would you judge the evidence? Do noise traders really exist? Do they really have an impact on the market? If so, do you think that impact is lasting or fleeting?
Noise traders may be speculative and tend to make trades from opinions, outdated facts, incomplete or inaccurate information, unlike the rational traders. The irrational or noise traders cause prices to deviate from the fundamental values. These traders are more likely to exist in inefficient markets, and the traders tend to distort prices. Noise trader actions are not based on current information, unlike rational traders who follow reasonable expectations. Sometimes, the noise traders get higher returns than the ration...