Trading and rational security pricing bubbles

Jean-Marc Bottazzi (), Jaime Luque () and Mário R. Páscoa ()
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Jean-Marc Bottazzi: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Axe Economie mathématique et jeux - CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Jaime Luque: UC3M - Universidad Carlos III de Madrid [Madrid]
Mário R. Páscoa: NOVA SBE - NOVA - School of Business and Economics - NOVA - Universidade Nova de Lisboa = NOVA University Lisbon

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Abstract: Securities markets theory includes repo and distinguishes shorting from issuing. Here we revisit whether trading alone can give rise to Ponzi schemes and rational bubbles. We show that under the same institutional arrangements that limit re-hypothecation (e.g., through segregated haircut rules or explicit leverage constraints on haircut collecting dealers), (1) trading Ponzi schemes are prevented without having to assume uniform impatience, (2) for securities in positive net supply, bubbles are ruled out under complete markets but may occur when markets are incomplete. We give an example of such a bubble, under a finite present value of wealth.

Keywords: Marchés à terme; trading; bulle spéculative; Ponzi; effet de levier; vente à découvert.; leverage; Ponzi scheme; repo specialness; bubble; Repo; short sale; trading. (search for similar items in EconPapers)
Date: 2012-02
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00673995
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Published in 2012

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