Financial Instability: Re-tradable Assets and Speculation

Sabiou M. Inoua () and Vernon Smith ()
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Sabiou M. Inoua: Chapman University

Chapter Chapter 7 in Economics of Markets, 2022, pp 157-182 from Springer

Abstract: Abstract The theory of competitive market price formation developed so far does not apply if the goods traded can be re-traded for capital gains, for then the stabilizing virtue of competition can be counteracted by speculation. The concept of re-tradability of a good is crucial for understanding market instability at both the macro and micro level, as directly evidenced by laboratory experiments. We offer a relatively simple model of speculative asset price dynamics that explains the excess, fat-tailed, and clustered volatility, three stylized facts of speculative asset prices.

Keywords: Economic instability; Re-tradable assets; Market instability; Kesten theorem and process; GARCH process (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-08428-7_7

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DOI: 10.1007/978-3-031-08428-7_7

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