Chapter 11 Stop-loss rules as a monitoring device: theory and evidence from the bond futures market

BERNARD. BENSAID

OLIVIER. DE BANDT

11.1 INTRODUCTION

Since Schiller’s (1981) seminal paper, the economic profession has faced a long-standing debate about market volatility, opposing two conflicting views on the functioning of financial markets. On the one hand, advocates of the rational expectation hypothesis have stressed the forward-looking properties of financial markets regarding changes in business conditions. On the other hand, models have been developed highlighting various ‘anomalies’ in financial markets, like the existence of bubbles or ‘fad’ effects, among others. Actually the opposition between these two views is not as irreductible ...

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