Published August 2018
| Submitted
Journal Article
Open
Extrapolation and bubbles
Chicago
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Abstract
We present an extrapolative model of bubbles. In the model, many investors form their demand for a risky asset by weighing two signals—an average of the asset's past price changes and the asset's degree of overvaluation—and "waver" over time in the relative weight they put on them. The model predicts that good news about fundamentals can trigger large price bubbles, that bubbles will be accompanied by high trading volume, and that volume increases with past asset returns. We present empirical evidence that bears on some of the model's distinctive predictions.
Additional Information
© 2018 Elsevier B.V. Received 25 January 2016, Revised 6 February 2017, Accepted 30 May 2017, Available online 4 May 2018. We are grateful to Bill Schwert (the editor), an anonymous referee, Marianne Andries, Alex Chinco, Charles Nathanson, Alp Simsek, Adi Sunderam, and seminar participants at Berkeley, Caltech, Cornell, Northwestern, NYU, Ohio State, Yale, the AEA, the Miami Behavioral Finance Conference, the NBER, and the WFA for very helpful comments.Attached Files
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Additional details
- Eprint ID
- 86233
- Resolver ID
- CaltechAUTHORS:20180507-080958460
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2018-05-07Created from EPrint's datestamp field
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2021-11-15Created from EPrint's last_modified field