Asset Float and Speculative Bubbles
Posted: 29 Aug 2005
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Asset Float and Speculative Bubbles
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: Suggested Citation
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