Abstract

http://ssrn.com/abstract=1767453
 
 

References (30)



 
 

Citations (7)



 


 



Quiet Bubbles


Harrison G. Hong


Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

David Alexandre Sraer


Princeton University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

February 22, 2011


Abstract:     
Classic speculative bubbles are loud: price is high and so are price volatility and share turnover. The credit bubble of 2003-2007 is quiet: price is high but price volatility and share turnover are low. We develop a model, based on investor disagreement and short-sales constraints, that explains why credit bubbles are quieter than equity ones. Since debt up-side payoff s are bounded, debt is less sensitive to disagreement about asset value than equity and hence has a smaller resale option and lower price volatility and turnover. While optimism makes both debt and equity bubbles larger, it makes debt mispricings quiet but leaves the loudness of equity mispricings unchanged. Our theory suggests a taxonomy of bubbles.

Number of Pages in PDF File: 44

Keywords: Bubbles, Financial Crisis, Sub-Prime Mortgage Securities, Credit

JEL Classification: G12, E50

working papers series


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Date posted: February 22, 2011 ; Last revised: November 21, 2011

Suggested Citation

Hong, Harrison G. and Sraer , David Alexandre, Quiet Bubbles (February 22, 2011). Available at SSRN: http://ssrn.com/abstract=1767453 or http://dx.doi.org/10.2139/ssrn.1767453

Contact Information

Harrison G. Hong (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
David Alexandre Sraer
Princeton University ( email )
22 Chambers Street
Princeton, NJ 08544
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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