Noise Bubbles

Mario Forni, Luca Gambetti, Marco Lippi and Luca Sala

No 532, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: We introduce imperfect information in stock prices determination. Agents receive a noisy signal about the structural shock driving future dividend variations. Equilibrium stock prices include a transitory 'noise bubble' which can be responsible for boom andbust episodes unrelated to economic fundamentals. We propose a non-standard VAR procedure to estimate impulse response functions to noise shock and the bubble component of stock prices. Noise explains a large fraction of US stock prices. The dot-com bubble is explained by noise. The 2007 stock price boom is not a bubble, whereas the following stock market crisis is due to negative noise shocks. JEL classification: C32, E32, E62. Keywords: Rational bubbles, structural VARs, noise shocks.

Date: 2014
New Economics Papers: this item is included in nep-sog
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://repec.unibocconi.it/igier/igi/wp/2014/532.pdf (application/pdf)

Related works:
Journal Article: Noise Bubbles (2017)
Working Paper: Noise Bubbles (2014)
Working Paper: Noise Bubbles (2013)
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:igi:igierp:532

Ordering information: This working paper can be ordered from
https://repec.unibocconi.it/igier/igi/

Access Statistics for this paper

More papers in Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University via Rontgen, 1 - 20136 Milano (Italy).
Bibliographic data for series maintained by ().