Article ID Journal Published Year Pages File Type
956947 Journal of Economic Theory 2013 13 Pages PDF
Abstract

This paper demonstrates the theoretical foundation that underlies the willingness of rational arbitrageurs to delay and reinforce the speculative attack. The key assumptions are that there is a small probability that arbitrageurs are behavioral and never time the market of their own accord and it is uncertain whether arbitrageurs are behavioral or rational. We model a stock market as a timing game, in which arbitrageurs compete to react quickest. We show that rational arbitrageurs are willing to ride the bubble for a long period. We also characterize symmetric Nash equilibria and show the sufficient condition for uniqueness.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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