Trading and rational security pricing bubbles

Jean-Marc Bottazzi, Jaime Luque () and Mário R. Páscoa ()
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Jaime Luque: Universidad Carlos III de Madrid
Mário R. Páscoa: NOVA - Business School of Economics and Finance
Authors registered in the RePEc Author Service: Mario Rui Pascoa

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Securities markets theory includes repo and distinguishes shorting from issuing. Here we revisit whether trading alone can give rise to Ponzi schemes and rational bubbles. We show that under the same institutional arrangements that limit re-hypothecation (e.g., through segregated haircut rules or explicit leverage constraints on haircut collecting dealers), (1) trading Ponzi schemes are prevented without having to assume uniform impatience, (2) for securities in positive net supply, bubbles are ruled out under complete markets but may occur when markets are incomplete. We give an example of such a bubble, under a finite present value of wealth

Keywords: repo; short sale; bubble; repo specialness; Ponzi scheme; leverage (search for similar items in EconPapers)
JEL-codes: C62 D52 D53 D90 G12 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-02
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http://mse.univ-paris1.fr/pub/mse/CES2012/12010.pdf (application/pdf)

Related works:
Working Paper: Trading and rational security pricing bubbles (2012)
Working Paper: Trading and rational security pricing bubbles (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:12010

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