On the Dynamics of Speculation in a Model of Bubbles and Manias

Carlos Pérez () and Manuel Santos

No 2017-02, Working Papers from University of Miami, Department of Economics

Abstract: We present an asset-trading model of `boom and bust' with homogeneous information. Our model builds on narrative accounts of asset pricing bubbles that hint at the interaction between behavioral and rational traders. A bubble emerges only if a mania could develop: behavioral traders temporarily outweigh rational traders with positive probability. We characterize the various phases of speculative behavior, and analyze how they may vary with changes in primitive parameters, asymmetric information, a single rational trader, and the arrival of new information.

Keywords: Bubbles; manias; behavioral trading; smart money; preemption game Publication Status: Ex. Under Review (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2017-04-11
New Economics Papers: this item is included in nep-mst and nep-ore
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