Price Destabilizing Speculation
Year: 1986
Type: article
Abstract: It is sometimes asserted that rational speculative activity must result in more stable prices because speculators buy when prices are low and sell when they are high. This is incorrect. Speculators buy when the chances of price appreciation are high, selling when the chances are low. Speculative activity in an economy in which all agents are rational, have identical priors, and have access to identical information may destabilize prices, under any reasonable definition of destabilization. It takes extremely strong conditions to ensure that speculative activity (of the commodity storage variety) "stabilizes" price, even in a very weak sense.
Source: Journal of Political Economy
DOI: 10.1086/261418
Authors: Oliver D. Hart, David M. Kreps
Institutions: Massachusetts Institute of Technology, Stanford University
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2007471708