We investigate the role played by the anchoring-and-adjustment heuristic in the speculative bubbles dynamics. In order to link anchoring bias and price deviations from fundamental value, we develop a stock market equilibrium model with heterogeneous investors: fundamental investor anchoring to past stock market prices and noise traders. The equilibrium model we derive suggests that price is a f...

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 ...

Why are asset prices so much more volatile and so often detached from their fundamental values? Why does the bursting of …nancial bubbles depress the real economy? This paper addresses these questions by constructing an in…nite-horizon heterogeneous agent general equilibrium model with speculative bubbles. We characterize conditions under which storable goods, regardless of their intrinsic valu...

economic stabilization is one of the main government objectives in the economy. one of the most destructive and devastating factors that could damage financial markets, are price bubble formations. thus, bubble creation in stock markets can be considered as a result of investor behaviors, because the market prices mainly reflect investor expectations from firm’s future perspectives. the aim of ...

The presence of bubbles in the markets and its formation has been regarded by economists and they have been looking to develop methods that can be recognized by using appropriate method for the formation of bubbles. In this paper, first, the formation of bubbles is tested using the new unit root test known as Phillips test (Generalized Sup ADF test) for 50 companies in the Tehran Stock Exchange...

Standard optimzing models of consumption postulate that consumption is a function of wealth and implicitly assume that wealth is comprised of assets whose market price coincides with the fundamental price, defined as the expected present value of future dividends. We use a simple theoretical framework to show that when the market price deviates from the fundamental price, consumption behavior w...