Asset float and speculative bubbles

Harrison Hong, José Scheinkman, Wei Xiong

Research output: Contribution to journalArticle

140 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1073-1117
Number of pages45
JournalJournal of Finance
Volume61
Issue number3
DOIs
StatePublished - Jun 2006

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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