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Asset Float and Speculative Bubbles

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  • Harrison Hong
  • Jose Scheinkman
  • Wei Xiong

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. Copyright 2006 by The American Finance Association.

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File URL: http://www.princeton.edu/~wxiong/papers/float.pdf
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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000861.

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Date of creation: 17 Jan 2005
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Handle: RePEc:cla:levrem:122247000000000861

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