Year: 2005
Type: report
Abstract: We model the relationship between asset float (tradeable shares) and speculative bubbles.Investors trade a stock with limited float because of insider lock-ups.They have heterogeneous beliefs due to overconfidence and face short-sales constraints.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 lock-up 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 lock-up expiration date.
DOI: 10.3386/w11367
Authors: Harrison Hong, Jose Scheinkman, Wei Xiong
Institutions: DePaul University, University of Iowa, Federal Reserve, National Bureau of Economic Research, National University of Singapore, Duke University, Princeton University, University of Florida, INSEAD, Université Paris Dauphine-PSL, New York University, Federal Reserve Bank of Chicago, Columbia University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1506429445