Financing Harmful Bubbles

Hitoshi Matsushima

No CARF-F-227, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: We model the stock market as a timing game, in which arbitrageurs who are not expected to be certainly rational compete over profit by bursting the bubble caused by investors? euphoria. The manager raises money by issuing shares and the arbitrageurs use leverage. If leverage is weakly regulated, it is the unique Nash equilibrium that the bubble persists for a long time. This holds even if the euphoria is negligible and all arbitrageurs are expected to be almost certainly rational. This bubble causes serious harm to the society, because the manager uses the money raised for his personal benefit.

Pages: 25 pages
Date: 2010-09
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Financing Harmful Bubbles (2010)
Working Paper: Financing Harmful Bubbles (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf227

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