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The Boy Who Cried Bubble: Public Warnings Against Riding Bubbles

Author

Listed:
  • YASUSHI ASAKO
  • KOZO UEDA

Abstract

type="main" xml:id="ecin12084-abs-0001"> Attempts by governments to stop bubbles by issuing warnings seem unsuccessful. This article examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it if investors believe that a warning is issued in a definite range of periods commencing around the starting period of the bubble. If a warning involves the possibility of being issued too early, regardless of the starting period of the bubble, it cannot stop the bubble immediately. Bubble duration can be shortened by a premature public warning, but lengthened if it is late.(JEL D82, E58, G18)

Suggested Citation

  • Yasushi Asako & Kozo Ueda, 2014. "The Boy Who Cried Bubble: Public Warnings Against Riding Bubbles," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1137-1152, July.
    • Handle: RePEc:bla:ecinqu:v:52:y:2014:i:3:p:1137-1152
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    File URL: http://hdl.handle.net/10.1111/ecin.2014.52.issue-3
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    Cited by:

    1. Doblas-Madrid, Antonio, 2016. "A finite model of riding bubbles," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 154-162.
    2. Feng Liu & Joseph S. White & John R. Conlon, 2023. "A Three‐State Rational Greater‐Fool Bubble Model With Intertemporal Consumption Smoothing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1565-1594, November.
    3. Asako, Yasushi & Funaki, Yukihiko & Ueda, Kozo & Uto, Nobuyuki, 2020. "(A)symmetric information bubbles: Experimental evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    4. Yu Awaya & Jihwan Do & Makoto Watanabe, 2025. "Bubbles and Collateral," CESifo Working Paper Series 11894, CESifo.
    5. Awaya, Yu & Iwasaki, Kohei & Watanabe, Makoto, 2022. "Rational bubbles and middlemen," Theoretical Economics, Econometric Society, vol. 17(4), November.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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