Trading and rational security pricing bubbles

Jean-Marc Bottazzi, Jaime Luque and Mario Pascoa

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: Securities markets theory includes repo and distinguishes shorting from issuing. Here we revisit whether trading alone can give rise to Ponzi schemes and rational bubbles. We show that under the same institutional arrangements that limit re-hypothecation (e.g., through segregated haircut rules or explicit leverage constraints on haircut collecting dealers), (1) trading Ponzi schemes are prevented without having to assume uniform impatience, (2) for securities in positive net supply, bubbles are ruled out under complete markets but may occur when markets are incomplete. We give an example of such a bubble, under a finite present value of wealth.

Keywords: Repo; Short; sale; Bubble; Repo; specialness; Ponzi; scheme; Leverage (search for similar items in EconPapers)
JEL-codes: C62 D52 D53 D90 G12 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://e-archivo.uc3m.es/rest/api/core/bitstreams ... efa8cb419ff2/content (application/pdf)

Related works:
Working Paper: Trading and rational security pricing bubbles (2012)
Working Paper: Trading and rational security pricing bubbles (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we1119

Access Statistics for this paper

More papers in UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía
Bibliographic data for series maintained by Ana Poveda ().