The DOI matches its Crossref record; 3 of the 3 references it cites were found in a registry or an index.
Overconfidence and Speculative Bubbles
Abstract
Motivated by the behavior of asset prices, trading volume, and price volatility during episodes of asset price bubbles, we present a continuous‐time equilibrium model in which overconfidence generates disagreements among agents regarding asset fundamentals. With short‐sale constraints, an asset buyer acquires an option to sell the asset to other agents when those agents have more optimistic beliefs. As in a paper by Harrison and Kreps, agents pay prices that exceed their own valuation of future dividends because they believe that in the future they will find a buyer willing to pay even more. This causes a significant bubble component in asset prices even when small differences of beliefs are sufficient to generate a trade. In equilibrium, bubbles are accompanied by large trading volume and high price volatility. Our analysis shows that while Tobin’s tax can substantially reduce speculative trading when transaction costs are small, it has only a limited impact on the size of the bubble or on price volatility.
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Cites
Shleifer, A., & Vishny, R. W. (1997) · The Journal of Finance · doi:10.1111/j.1540-6261.1997.tb03807.x · Cited by 5,291
Lord, C. G., Ross, L., & Lepper, M. R. (1979) · Journal of Personality and Social Psychology · doi:10.1037/0022-3514.37.11.2098 · Cited by 4,583
Odean, T. (1999) · American Economic Review · doi:10.1257/aer.89.5.1279 · Cited by 2,247
Cited by
BOLTON, P., FREIXAS, X., & SHAPIRO, J. (2012) · The Journal of Finance · doi:10.1111/j.1540-6261.2011.01708.x · Cited by 940
Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle
STAMBAUGH, R. F., YU, J., & YUAN, Y. (2015) · The Journal of Finance · doi:10.1111/jofi.12286 · Cited by 940
The Behavior of Individual Investors
Barber, B. M., & Odean, T. (2013) · Handbook of the Economics of Finance · doi:10.1016/b978-0-44-459406-8.00022-6 · Cited by 750
Does Climate Change Affect Real Estate Prices? Only If You Believe In It
Baldauf, M., Garlappi, L., & Yannelis, C. (2020) · The Review of Financial Studies · doi:10.1093/rfs/hhz073 · Cited by 713
Gromb, D., & Vayanos, D. (2010) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-073009-104107 · Cited by 478
Metadata
- Authors
- Scheinkman, J. A., & Xiong, W.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2003-12
- Volume
- 111
- Issue
- 6
- Pages
- 1183-1220
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W3123195209
- Cited by
- 2,198
- References
- 3
- FWCI
- 86.69
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
