Behavioral aspects of arbitrageurs in timing games of bubbles and crashes

Hitoshi Matsushima

Journal of Economic Theory, 2013, vol. 148, issue 2, 858-870

Abstract: This paper demonstrates the theoretical foundation that underlies the willingness of rational arbitrageurs to delay and reinforce the speculative attack. The key assumptions are that there is a small probability that arbitrageurs are behavioral and never time the market of their own accord and it is uncertain whether arbitrageurs are behavioral or rational. We model a stock market as a timing game, in which arbitrageurs compete to react quickest. We show that rational arbitrageurs are willing to ride the bubble for a long period. We also characterize symmetric Nash equilibria and show the sufficient condition for uniqueness.

Keywords: Bubbles and crashes; Timing games; Behavioral arbitrageurs; Reputation; Characterization; Uniqueness (search for similar items in EconPapers)
JEL-codes: C72 C73 D82 G14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Behavioral Aspects of Arbitrageurs in Timing Games of Bubbles and Crashes (2012)
Working Paper: Behavioral Aspects of Arbitrageurs in Timing Games of Bubbles and Crashes (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:2:p:858-870

DOI: 10.1016/j.jet.2012.08.002

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