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On the Inception of Rational Bubbles in Stock Prices

Diba, Behzad T. - 1986

Persistent link: https://www.econbiz.de/10012477082

Diba, Behzad T. - 1985

This paper reports empirical tests for the existence of rational bubbles in stock prices. The analysis focuses on a familiar model that defines market fundamentals to be the expected present value of dividends, discounted at a constantrate, and defines a rational bubble to be a self-confirming...

Persistent link: https://www.econbiz.de/10012477310

The Impossibility of Rational Bubbles

Diba, Behzad T. - 1985

A rational bubble would involve a self-confirming belief that an asset price depends on information that includes variables or parameters that are not part of market fundamentals. The existing literature shows that, if market fundamentals are economically interesting, i.e., forward looking, any...

Persistent link: https://www.econbiz.de/10012477466

Ruling Out Nonstationary Speculative Bubbles

Obstfeld, Maurice - 1985

There is a large and growing empirical literature that tests forthe existence of asset-price bubbles or "sunspot" equilibria -- equilibria unrelated to market fundamentals. Our view is that even tests for non-stationary asset-price bubbles should not be interpreted as such. In the present paper...

Persistent link: https://www.econbiz.de/10012477481

The Forward Exchange Market, Speculation, and Exchange Market Intervention

Eaton, Jonathan - 1983

This paper develops a stochastic equilibrium model of an open economy incorporating speculation in the forward exchange … market. The model is used to examine two issues. The first is the role of speculation in stabilizing the economy against … stochastic disturbances. Much risk averse speculation stabilizes domestic income against disturbances in the domestic bond market …

Persistent link: https://www.econbiz.de/10012477963

Intertemporal Price Speculation and the Optimal Current-Account Deficit

Obstfeld, Maurice - 1983

The paper studies the effects of terms-of-trade fluctuations in an infinite-horizon optimizing model of a small open economy. While the current-account response to a transitory terms-of-trade shock is in part explicable by intertemporal smoothing, an important additional factor is the effect of...

Persistent link: https://www.econbiz.de/10012478002

Advisors and Asset Prices : A Model of the Origins of Bubbles

Hong, Harrison - 2007

We develop a model of asset price bubbles based on the communication process between advisors and investors. Advisors are well-intentioned and want to maximize the welfare of their advisees (like a parent treats a child). But only some advisors understand the new technology (the tech-savvies);...

Persistent link: https://www.econbiz.de/10012465142

Noise Traders

Dow, James - 2006

Noise traders are agents whose theoretical existence has been hypothesized as a way of solving certain fundamental problems in Financial Economics. We briefly review the literature on noise traders. The is an entry for The New Palgrave: A Dictionary of Economics, 2nd Edition (Palgrave Macmillan:...

Persistent link: https://www.econbiz.de/10012466412

Sensation Seeking, Overconfidence, and Trading Activity

Grinblatt, Mark - 2006

This study analyzes the role that two psychological attributes--sensation seeking and overconfidence--play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor's tax filings, driving record, and psychological profile. We use the data to...

Persistent link: https://www.econbiz.de/10012466445

Speculative Growth : Hints from the US Economy

Caballero, Ricardo - 2004

We propose a framework for understanding recurrent historical episodes of vigorous economic expansion accompanied by extreme asset valuations, as exhibited by the U.S. in the 1990s. We interpret this phenomenon as a high-valuation equilibrium with a low effective cost of capital based on...

Persistent link: https://www.econbiz.de/10012468175

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