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Asset Float and Speculative Bubbles

Harrison Hong, Jose Scheinkman and Wei Xiong

No 11367, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors trade a stock with limited float because of insider lock-ups. They have heterogeneous beliefs due to overconfidence and face short-sales constraints. A bubble arises as price overweighs optimists' beliefs and investors anticipate the option to resell to those with even higher valuations. The bubble's size depends on float as investors anticipate an increase in float with lock-up expirations and speculate over the degree of insider selling. Consistent with the internet experience, the bubble, turnover and volatility decrease with float and prices drop on the lock-up expiration date.

JEL-codes: G0 G1 (search for similar items in EconPapers)
Date: 2005-05
New Economics Papers: this item is included in nep-cfn and nep-fin
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Published as Hong, Harrison, Jos Scheinkman and Wei Xiong. "Asset Float And Speculative Bubbles," Journal of Finance, 2006, v61(3,Jun), 1073-1117.

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