On The Dynamic Behavior of Prices in Disequilibrium

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Abstract
Satisfied as we may be with the overall efficiency of the market system and with the tenets of the perfect market model, we all viscerally know that were we down on the market floor we would certainly react to a multitude of apparent price discrepancies. Indeed, it is intuitively inconceivable that a man‐made institution (such as the market) could be so mechanically perfect that all such discrepancies would be totally annihilated before they can be observed. Accordingly, we would expect floor traders and other professionals to be speculating abundantly on what they perceive to be the direction in which the market is going. Almost surely, such behavior has an effect on the dynamics of stock prices. A financial theory that cavalierly ignores this component in the determination of prices would be regrettably deficient.

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