Asset Price Bubbles and Stock Market Interlinkages
AbstractThe eect of stock market interlinkages on asset price bubbles are considered. Bubbles can occur when there is an agency problem between banks and the people they lend money to because the banks cannot observe how the funds are invested. This causes a risk shifting problem and asset prices are bid up above their fundamental. The greater is uncertainty about asset returns or about the amount of aggregate credit the greater is the bubble. Stock market interlinkages can moderate or exacerbate asset price bubbles.
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Bibliographic InfoPaper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 02-22.
Date of creation: Apr 2002
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