Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259797 
Year of Publication: 
2022
Series/Report no.: 
BERG Working Paper Series No. 177
Publisher: 
Bamberg University, Bamberg Economic Research Group (BERG), Bamberg
Abstract: 
We develop an asset market participation model in which investors base their market entry decisions on the momentum, value and risk of the market. Despite our behavioral framework, the model's fundamental steady state is characterized by standard present-value relations between expected future payouts and the model-implied risk-adjusted return. We derive conditions under which endogenous asset market participation waves and co-evolving boom-bust cycles emerge. Moreover, we show that the asset market may display spontaneous, sharp and permanent downturns if investors react sensitively to risk, an outcome that goes hand in hand with low asset market participation rates and excess volatility.
Subjects: 
boom-bust cycles
asset market participation waves
momentum, value and risk
herding behavior
feedback loops
JEL: 
D84
G12
G41
ISBN: 
978-3-943153-98-9
Document Type: 
Working Paper

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