A Model of Bubbles and Crashes

Dilip Abreu ()
Additional contact information
Dilip Abreu: Princeton University

Chapter Chapter 9 in Development in India, 2016, pp 157-167 from Springer

Abstract: Abstract This paper presents a model in which an asset bubble may persist despite the presence of a large mass of rational arbitrageurs whose joint responses would suffice to burst the bubble. The resilience of the bubble stems from the inability of arbitrageurs to temporarily coordinate their selling strategies. This synchronization problem together with the individual incentive to time the market results in the persistence of bubbles over a substantial period. The analysis suggests that behavioral influences on prices are immune to arbitrage in the short and medium run. The model provides a natural setting in which news events, by enabling synchronization, may have a disproportionate impact relative to their intrinsic informational content.

Keywords: Asset Price; Efficient Market Hypothesis; Eventual Collapse; Bubble Burst; Pareto Optimal Allocation (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:isbchp:978-81-322-2541-6_9

Ordering information: This item can be ordered from
http://www.springer.com/9788132225416

DOI: 10.1007/978-81-322-2541-6_9

Access Statistics for this chapter

More chapters in India Studies in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().