|
|
Paper Stats:
Abstract Views: 1065
Downloads: 0
|
Finite Bubbles with Short Sale Constraints and Asymmetric Information
|
FRANKLIN ALLEN
University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)
STEPHEN MORRIS
Princeton University - Department of Economics
ANDREW POSTLEWAITE
University of Pennsylvania - Department of Economics
|
| |
Abstract:
We present a finite period general equilibrium model of an exchange economy with asymmetric information. We say that a rational expectations equilibrium exhibits an expected bubble if the price of an asset in one period is higher than any agent's marginal valuation of holding the asset to maturity. We say the equilibrium exhibits a strong bubble if the price is higher than the dividend with probability one. We show that a necessary condition for an expected bubble to exist is that each agent must be short sale constrained at some period in the future with positive probability. We show that necessary conditions for a strong bubble to occur are that (1) each agent must have private information in the period and state in which the bubble occurs and (2) agents' trades are not common knowledge. We also present examples of rational expectations equilibria that exhibit strict bubbles when the necessary conditions are satisfied.
|
| |
JEL Classifications: G14
|
| |
Working Paper Series
|
| |
Contact Information for
FRANKLIN
ALLEN
(Contact Author)
Email address for FRANKLIN
ALLEN
University of Pennsylvania - Finance Department
The Wharton School
3620 Locust Walk
Philadelphia
, PA
19104
United States
215-898-3629 (Phone)
215-573-2207 (Fax)
|
|
(No e-mail address available for FRANKLIN
ALLEN
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
|
|
Contact Information for
STEPHEN
MORRIS
Email address for STEPHEN
MORRIS
Princeton University - Department of Economics
Princeton
, NJ
08544-1021
United States
|
|
Contact Information for
ANDREW
POSTLEWAITE
Email address for ANDREW
POSTLEWAITE
University of Pennsylvania - Department of Economics
3718 Locust Walk
Philadelphia
, PA
19104
United States
215-898-7350 (Phone)
215-573-2057 (Fax)
|
|
|
| |
|
| |
Email Abstract or URL
|
| |
SSRN Resources
To search for other abstracts in the SSRN archival database, click here.
To order a membership to an SSRN Network or to subscribe to one or more of SSRN's journals,
go to our online subscription request form.
To go to SSRN's main web site (www.ssrn.com), click here.
|
