Abstract

http://ssrn.com/abstract=686325
 
 

References (24)



 
 

Citations (21)



 


 



Advisors and Asset Prices: A Model of the Origins of Bubbles


Wei Xiong


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

Jose A. Scheinkman


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

Harrison G. Hong


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

December 21, 2005

AFA 2006 Boston Meetings Paper

Abstract:     
Many asset price bubbles occur during periods of excitement about new technologies. We focus on the role of advisors and the communication process with investors in explaining this stylized fact. Advisors are good-intentioned and want to maximize the welfare of their advisees. But only some understand the new technology (the tech-savvys); others do not and can only make a downward-biased recommendation (the old-fogies). While smart investors recognize the heterogeneity in advisors, naive ones mistakenly take whatever is said at face value. Tech-savvys inflate their forecasts to signal that they are not old-fogies since more accurate information about their type improves the welfare of investors in the future. A bubble arises for a wide range of parameters and its size is maximized when there is a mix of smart and naive investors in the economy. Our model yields a number of additional testable implications.

Number of Pages in PDF File: 45

Keywords: Technology bubble, financial advisor, communication, reputation

JEL Classification: G10, G20

working papers series





Download This Paper

Date posted: March 15, 2005  

Suggested Citation

Xiong, Wei and Scheinkman, Jose A. and Hong, Harrison G., Advisors and Asset Prices: A Model of the Origins of Bubbles (December 21, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=686325 or http://dx.doi.org/10.2139/ssrn.686325

Contact Information

Wei Xiong (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
Jose A. Scheinkman
Columbia University ( email )
420 W. 118th Street
New York, NY 10027
United States
HOME PAGE: http://www.princeton.edu/~joses
Princeton University - Department of Economics ( email )
26 Prospect Avenue
Princeton, NJ 08544
United States
609-258-4020 (Phone)
609-258-6419 (Fax)
HOME PAGE: http://www.princeton.edu/~joses

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Harrison G. Hong
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
Feedback to SSRN


Paper statistics
Abstract Views: 1,390
Downloads: 126
References:  24
Citations:  21

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.453 seconds