Asset Float and Speculative Bubbles

Posted: 29 Aug 2005

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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Abstract

We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors with heterogeneous beliefs and short-sales constraints trade a stock with limited float because of insider lockups. 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 lockup 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 lockup expiration date.

JEL Classification: G0, G1

Suggested Citation

Scheinkman, José and Xiong, Wei and Hong, Harrison G., Asset Float and Speculative Bubbles. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=788906

José Scheinkman

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Princeton University - Department of Economics ( email )

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Wei Xiong (Contact Author)

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Harrison G. Hong

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

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New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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