Speculative investor behavior and learning

Stephen Morris

doi:10.2307/2946709

Speculative investor behavior and learning

Stephen Morris

Research output: Contribution to journal › Article › peer-review

162 Scopus citations

Abstract

As traders learn about the true distribution of some asset's dividends, a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred. Small differences in prior beliefs lead to large speculative premiums during the learning process. This phenomenon helps explain a paradox concerning the pricing of initial public offerings. The result casts light on the significance of the common prior assumption in economic models.

Original language	English (US)
Pages (from-to)	1111-1133
Number of pages	23
Journal	Quarterly Journal of Economics
Volume	111
Issue number	4
DOIs	https://doi.org/10.2307/2946709
State	Published - Nov 1996

All Science Journal Classification (ASJC) codes

Economics and Econometrics

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10.2307/2946709

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title = "Speculative investor behavior and learning",

abstract = "As traders learn about the true distribution of some asset's dividends, a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred. Small differences in prior beliefs lead to large speculative premiums during the learning process. This phenomenon helps explain a paradox concerning the pricing of initial public offerings. The result casts light on the significance of the common prior assumption in economic models.",

author = "Stephen Morris",

note = "Funding Information: *An earlier version of this paper was circulated under the title {"}Price Bubbles and Learning{"} as University of Cambridge Economic Theory Discussion Paper No. 191. I gratefully acknowledge financial support from an ESRC research grant (R000232865) and an EEC contract (SPESCT910057) to visit Cambridge. I am grateful to Luis Cubeddu and Jonathan Heathcote for expertly performing the numerical simulations reported in Section N. I would like to thank Franklin Allen, Jayasri Dutta, David Easley, Larry Epstein, Gerald Faulhaber, Frank Hahn, Atsushi Kajii, Andrew Postlewaite, Jose-Victor Rios-Rull, and Ruilin Zhou for valuable discussions; James Peck, Andrei Shleifer, and an anonymous referee for detailed and helpful suggestions on revising the paper; and Dean Foster for the idea of Theorem 1 and Example 3.",

year = "1996",

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doi = "10.2307/2946709",

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N2 - As traders learn about the true distribution of some asset's dividends, a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred. Small differences in prior beliefs lead to large speculative premiums during the learning process. This phenomenon helps explain a paradox concerning the pricing of initial public offerings. The result casts light on the significance of the common prior assumption in economic models.

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Speculative investor behavior and learning

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