PDF iconDownload This Paper
Open PDF in Browser
Add Paper to My Library
Permalink
Using these links will ensure access to this page indefinitely
Copy URL
Copy DOI

Noise Bubbles

Baffi Center Research Paper No. 2014-160

40 Pages Posted: 20 Nov 2014

See all articles by Mario Forni

Mario Forni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; Centre for Economic Policy Research (CEPR)

Luca Gambetti

Universitat Autonoma de Barcelona

Marco Lippi

Dipartimento di Scienze Economiche (DiSSE); Einaudi Institute for Economics and Finance (EIEF)

Luca Sala

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER)

Date Written: November 2014

Abstract

We introduce imperfect information in stock prices determination. Agents receive a noisy signal about the structural shock driving future dividend variations. Equilibrium stock prices include a transitory "noise bubble" which can be responsible for boom and bust episodes unrelated to economic fundamentals. We propose a non-standard VAR procedure to estimate impulse response functions to noise shock and the bubble component of stock prices. Noise explains a large fraction of US stock prices. The dot-com bubble is explained by noise. The 2007 stock price boom is not a bubble, whereas the following stock market crisis is due to negative noise shocks.

Keywords: Rational bubbles, structural VARs, noise shocks

JEL Classification: C32, E32, E62

Suggested Citation

Forni, Mario and Gambetti, Luca and Lippi, Marco and Sala, Luca, Noise Bubbles (November 2014). Baffi Center Research Paper No. 2014-160, Available at SSRN: https://ssrn.com/abstract=2527954 or http://dx.doi.org/10.2139/ssrn.2527954

Mario Forni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy
+39 059 205 6852 (Phone)
+39 059 205 6947 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Luca Gambetti

Universitat Autonoma de Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

Marco Lippi

Dipartimento di Scienze Economiche (DiSSE) ( email )

14 Via Cesalpino
Rome, 00161
Italy
+39 06 4428 4202 (Phone)
+39 06 4404 572 (Fax)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Luca Sala (Contact Author)

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 02 5836 3326 (Phone)

PDF iconDownload This Paper
Open PDF in Browser

Do you have a job opening that you would like to promote on SSRN?

Place job opening

Paper statistics

Downloads
76
Abstract Views
1,029
rank
377,322
33 References
PlumX Metrics

Related eJournals