Asset Float and Speculative Bubbles

52 Pages Posted: 24 Jun 2005 Last revised: 25 Jul 2010

See all articles by José Scheinkman

José Scheinkman

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

Wei Xiong

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

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: May 2005

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.

Suggested Citation

Scheinkman, José and Xiong, Wei and Hong, Harrison G., Asset Float and Speculative Bubbles (May 2005). NBER Working Paper No. w11367, Available at SSRN: https://ssrn.com/abstract=727147

José Scheinkman (Contact Author)

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National Bureau of Economic Research (NBER)

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Wei Xiong

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

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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