Cookies?
Library Header Image
LSE Research Online LSE Library Services

Bubbles and crashes

Abreu, Dilip and Brunnermeier, Markus K. (2002) Bubbles and crashes. Discussion paper, 401. Financial Markets Group, London School of Economics and Political Science, London, UK.

[img]
Preview
PDF
Download (523Kb) | Preview

Abstract

We present a model in which an asset bubble can persist despite the presence of rational arbitrageurs. The resilience of the bubble stems from the inability of arbitrageurs to temporarily coordinate their selling strategies. This synchronization problem together with the individual incentive to time the market results in the persistence of bubbles over a substantial period of time. Since the derived trading equilibrium is unique, our model rationalizes the existence of bubbles in a strong sense. The model also provides a natural setting in which public events, by enabling synchronization, can have a disproportionate impact relative to their intrinsic informational content.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2002 The Authors
Library of Congress subject classification: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 401
Date Deposited: 19 Aug 2009 11:06
URL: http://eprints.lse.ac.uk/24905/

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only

Downloads

Downloads per month over past year

View more statistics