Bubbles and crashes with partially sophisticated investors

Milo Bianchi and Philippe Jehiel ()

Working Papers from HAL

Abstract: We consider a purely speculative market with finite horizon and complete information. We introduce partially sophisticated investors, who know the average buy and sell strategies of other traders, but lack a precise understanding of how these strategies depend on the history of trade. In this setting, it is common knowledge that the market is overvalued and bound to crash, but agents hold different expectations about the date of the crash. We define conditions for the existence of equilibrium bubbles and crashes, characterize their structure, and show how bubbles may last longer when the amount of fully rational traders increases.

Keywords: speculative bubbles; crashes; bounded rationality (search for similar items in EconPapers)
Date: 2008-10
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00586045v1
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Bubbles and Crashes with Partially Sophisticated Investors (2010)
Working Paper: Bubbles and crashes with partially sophisticated investors (2008)
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