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On the Possibility of Speculation under Rational Expectations
Abstract
This paper considers the possibility of static and dynamic speculation when traders have rational expectations. Its central theme is that, unless traders have different priors or are able to obtain insurance in the market, speculation relies on inconsistent plans, and thus is ruled out by rational expectations. Its main contribution lies in the integration of the rational expectations equilibrium concept into a model of dynamic asset trading and in the study of the speculation created by potential capital gains. Price bubbles and their martingale properties are examined. It is argued that price bubbles rely on the myopia of traders and that they disappear if traders adopt a truly dynamic maximizing behavior.
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Citations
Cited by
Abreu, D., & Brunnermeier, M. K. (2003) · Econometrica · doi:10.1111/1468-0262.00393 · Cited by 1,208
Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets
Suchanek, G. L., & Williams, A. W. (1991) · Papers in Experimental Economics · doi:10.1017/cbo9780511528354.022 · Cited by 916
Index Funds, Financialization, and Commodity Futures Markets
Irwin, S. H., & Sanders, D. R. (2011) · Applied Economic Perspectives and Policy · doi:10.1093/aepp/ppq032 · Cited by 488
Allowance price drivers in the first phase of the EU ETS
Hintermann, B. (2010) · Journal of Environmental Economics and Management · doi:10.1016/j.jeem.2009.07.002 · Cited by 441
Investors' Horizons and the Amplification of Market Shocks
Cella, C., Ellul, A., & Giannetti, M. (2013) · Review of Financial Studies · doi:10.1093/rfs/hht023 · Cited by 330
Metadata
- Authors
- Tirole, J.
- Venue
- Econometrica
- Publisher
- JSTOR
- Published
- 1982-09
- Volume
- 50
- Issue
- 5
- Pages
- 1163
- ISSN
- 0012-9682 (ISSN-L)
- OpenAlex
- W2094833625
- Cited by
- 958
- References
- 0
- FWCI
- 21.75
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: On the Possibility of Speculation under Rational Expectations. https://app.cochat.ai/papers/10.2307/1911868
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- Tirole, J. (1982). On the Possibility of Speculation under Rational Expectations. Econometrica. https://doi.org/10.2307/1911868
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
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.
