EconStor >
Verein für Socialpolitik >
Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/37239
  
Title:The Birth and Burst of Asset Price Bubbles PDF Logo
Authors:Enders, Zeno
Hakenes, Hendrik
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Empirical Asset Pricing F19-V2
Abstract:We develop a model of rational bubbles, based on the assumptions of an unknown potential market size and delegation of investment decisions. In a bubble, the price of an asset rises above its steady-state value, which must be justified by rational expectations about possible future price development. The higher the expected future price increase, the more likely is the market potential reached, in which case the bubble will burst. Depending on the interaction of uncertainty about the market potential, fundamental riskiness of the asset, the compensation scheme of the fonds manager, and the risk-free interest rate, we give a condition for whether rational bubbles are possible. Based on this analysis, several widely-discussed policy measures are investigated with respect to their effectiveness to prevent bubbles. A modified Taylor rule, long-term compensation, and capital requirements can have the desired effect. Caps on bonuses can create or destroy the possibility of bubbles, depending on their implementation, whereas a Tobin tax is unlikely to prevent bubbles.
Subjects:Bubbles
Rational Expectations
Bonuses
Compensation Schemes
Financial Crises
Financial Policy
JEL:G12
G18
G10
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

Files in This Item:
File Description SizeFormat
VfS_2010_pid_583.pdf243.16 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/37239

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.