Trading and rational security pricing bubbles

Jean-Marc Bottazzi, Jaime Luque () and Mario Pascoa
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Jaime Luque: UC3M - Universidad Carlos III de Madrid [Madrid]

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

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: Marchés à terme; trading; bulle spéculative; Ponzi; effet de levier; vente à découvert.; leverage; Ponzi scheme; repo specialness; bubble; Repo; short sale; trading. (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-fmk
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00673995v1
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Published in 2012

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Related works:
Working Paper: Trading and rational security pricing bubbles (2012)
Working Paper: Trading and rational security pricing bubbles (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00673995

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