Abstract
Abstract This paper generalizes De Long et al.'s (1990a) seminal model of destabilizing rational speculation in the presence of positive feedback trading by incorporating additional trading dates and an additional informative signal. Rational speculation can be stabilizing in the generalized model. The model is compatible with observed patterns of asset prices, such as short-term momentum and mean reversion. There is little scope for interpreting the equilibrium asset price as deviating from fundamental value.
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