NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Spencer Yongwook Kwon

Department of Economics
Harvard University
1805 Cambridge Street
Cambridge, Mass 02138
United States

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Harvard University

NBER Working Papers and Publications

December 2018Diagnostic Bubbles
with Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer: w25399
We introduce diagnostic expectations into a standard setting of price formation in which investors learn about the fundamental value of an asset and trade it. We study the interaction of diagnostic expectations with two well-known mechanisms: learning from prices and speculation (buying for resale). With diagnostic (but not with rational) expectations, these mechanisms lead to price paths exhibiting three phases: initial underreaction, followed by overshooting (the bubble), and finally a crash. With learning from prices, the model generates price extrapolation as a byproduct of fast moving beliefs about fundamentals, which lasts only as the bubble builds up. When investors speculate, even mild diagnostic distortions generate substantial bubbles.

Published: Pedro Bordalo & Nicola Gennaioli & Spencer Yongwook Kwon & Andrei Shleifer, 2020. "Diagnostic Bubbles," Journal of Financial Economics, .

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us