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Speculative Dynamics of Prices and Volume

Author

Listed:
  • Eric Zwick

    (University of Chicago)

  • Charles Nathanson

    (Northwestern University)

  • Anthony DeFusco

    (Northwestern University)

Abstract

We present a dynamic theory of prices and volume in asset bubbles. In our framework, predictable price increases endogenously attract short-term investors more strongly than long-term investors. Short-term investors amplify volume by selling more frequently, and they destabilize prices through positive feedback. Our model predicts a lead-lag relationship between volume and prices that we conrm in the 2000-2008 US housing bubble. Using data on 50 million home sales from this episode, we document that much of the variation in volume arose from the rise and fall in short-term investment.

Suggested Citation

  • Eric Zwick & Charles Nathanson & Anthony DeFusco, 2017. "Speculative Dynamics of Prices and Volume," 2017 Meeting Papers 239, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:239
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Carlos J. Perez & Manuel Santos, 2017. "On the Dynamics of Speculation in a Model of Bubbles and Manias," Working Papers 2017-02, University of Miami, Department of Economics.
    2. Christopher Hansman & Harrison Hong & Wenxi Jiang & Yu-Jane Liu & Juan-Juan Meng, 2018. "Riding the Credit Boom," NBER Working Papers 24586, National Bureau of Economic Research, Inc.
    3. Charles G. Nathanson & Eric Zwick, 2017. "Arrested Development: Theory and Evidence of Supply-Side Speculation in the Housing Market," NBER Working Papers 23030, National Bureau of Economic Research, Inc.
    4. Nelson Lind, 2017. "Credit Regimes and the Seeds of Crisis," 2017 Meeting Papers 1474, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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