Price and volume dynamics in bubbles

Jingchi Liao, Cheng Peng and Ning Zhu

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We propose a framework based on two ingredients—extrapolative beliefs and the disposition effect—and show that it can generate the sharp rise in both prices and volume observed in many bubbles. We test this framework using novel, account-level data on the 2014–2015 Chinese stock market bubble. The interaction of extrapolative beliefs and the disposition effect explains 30% of the rise in volume. Investors who are both extrapolative and prone to the disposition effect are quick to buy a stock with positive past returns, but also quick to sell it if good returns continue.

Keywords: bubbles; the disposition effect; extrapolation; volume (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2019-04-02
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:102057

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