Premium
Asset Float and Speculative Bubbles
Author(s) -
HONG HARRISON,
SCHEINKMAN JOSÉ,
XIONG WEI
Publication year - 2006
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2006.00867.x
Subject(s) - float (project management) , monetary economics , insider , business , volatility (finance) , stock (firearms) , bubble , asset (computer security) , economics , financial economics , finance , mechanics , computer security , management , political science , computer science , law , mechanical engineering , physics , engineering
We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors with heterogeneous beliefs and short‐sales constraints trade a stock with limited float because of insider lockups. A bubble arises as price overweighs optimists' beliefs and investors anticipate the option to resell to those with even higher valuations. The bubble's size depends on float as investors anticipate an increase in float with lockup expirations and speculate over the degree of insider selling. Consistent with the internet experience, the bubble, turnover, and volatility decrease with float and prices drop on the lockup expiration date.