Speculative Bubbles, Heterogeneopus Beliefs, and Learning

Jan Werner

No 1216, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops a general theory of speculative bubbles and speculative trade in dynamic asset markets with short sales restrictions when agents have heterogeneous beliefs and are risk neutral. Speculative bubble arises when the price of an asset exceeds every trader's valuation measured by her willingness to pay if obliged to hold the asset forever. Speculative bubble indicates speculative trade - whoever holds the asset intends to sell it at a later date. We identify a sufficient condition on agents' heterogeneous beliefs for speculative bubbles in equilibrium. Our main focus is on heterogeneous beliefs arising from updating different prior beliefs in Bayesian model of learning. The sufficient condition for beliefs in Bayesian model is that no single prior dominates other agents' priors in the sense of monotone likelihood ratio order. We study asymptotic properties of speculative bubbles in light of merging of conditional beliefs and consistency of priors.

Date: 2018
New Economics Papers: this item is included in nep-dge and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2018/paper_1216.pdf (application/pdf)

Related works:
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:red:sed018:1216

Access Statistics for this paper

More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().