Quiet bubbles
نویسندگان
چکیده
Classic speculative bubbles are loud – price is high and so are price volatility and share turnover. The credit bubble of 2003-2007 is quiet – price is high but price volatility and share turnover are low. We develop a model, based on investor disagreement and short-sales constraints, that explains why credit bubbles are quieter than equity ones. Since debt up-side payoffs are bounded, debt is less sensitive to disagreement about asset value than equity and hence has a smaller resale option and lower price volatility and turnover. While optimism makes both debt and equity bubbles larger, it makes debt mispricings quiet but leaves the loudness of equity mispricings unchanged. Our theory suggests a taxonomy of bubbles. ∗Hong acknowledges support from the National Science Foundation through grant SES-0850404. We are deeply appreciative to Jeremy Stein for very insightful comments. We also thank Bengt Holmstrom, Sébastien Pouget, Eric Silvergold, Itay Goldstein, Alp Simsek and seminar participants at the NBER Monetary Economics Program, NBER Asset Pricing Program, Federal Reserve Board, Princeton University, MIT Sloan School of Management, Bendheim Center for Finance 10th anniversary conference, the 40th anniversary conference of Micro-Foundations for Macroeconomics at Columbia University, Casa das Garças in Rio De Janeiro, Australasian Banking and Finance Conference, Society for Financial Management Conference at National Taiwan University, the Brazilian Society for Finance, the Behavioral Finance Conference at Beijing University, for many helpful comments. This paper was previously circulated under the title ”A Taxonomy of Bubbles”. †Princeton University and NBER (e-mail: [email protected]) ‡Princeton University (e-mail: [email protected])
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تاریخ انتشار 2010