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Journal of Finance Vol. 61 No. 3 2006

Asset Float and Speculative Bubbles

Harrison Hong1,2,3,4,5,6,7; José Scheinkman1,2,3,4,5,6,7; Wei Xiong8,9

1 DePaul University · 2 Federal Reserve · 3 National Bureau of Economic Research · 4 National University of Singapore · 5 Princeton University · 6 INSEAD · 7 Federal Reserve Bank of Chicago · 8 Ecolab (United States) · 9 Rome Foundation

open access

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.

DOI
10.1111/j.1540-6261.2006.00867.x
Volume
61
Issue
3
Pages
1073-1117
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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