Price formation on the Tesla stock market : A study on market impact and trader types

Sammanfattning: To the question of whether the price of a financial asset is set based on rational responses to information or not, financial literature may never find consensus. However, both rational and irrational agents seem to roam financial markets. To add insight that might contribute to answering this question, while addressing peculiar occurrences specific to the Tesla stock price, I set out to test the aggregated price impact, to the Tesla stock price, caused by different investor types. The dataset analyzed includes transaction information on all trades of the Tesla stock, that were executed on the Nasdaq stock market, during market open between February 1st and April 30th, 2021. Microstructure literature and classical price theory were used for modeling. Each agent’s trader type was determined by turnover proxy. With some limitations to the accuracy of the estimates, I provide empirical results consistent with behavioral finance literature, and inconsistent with the efficient market hypothesis, that short-term effects, on the formation of the Tesla stock price, are primarily a consequence of uninformed trader behavior. Also, my results provide some indication of that rational behavior may have a lagged negative effect on irrational behavior.