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SSRN Electronic Journal
Article . 2011 . Peer-reviewed
Data sources: Crossref
Journal of Financial Economics
Article . 2013 . Peer-reviewed
Data sources: Crossref
SSRN Electronic Journal
Article . 2011 . Peer-reviewed
Data sources: Crossref
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Quiet Bubbles

Authors: Hong, Harrison; Sraer, David;
Abstract

Motivated by the recent subprime mortgage crisis, we explore whether speculative bubble models of equity based on investor disagreement and short-sales constraints can also provide an explanation for the overvaluation of debt contracts. We find that this is unlikely. Equity bubbles are loud: price and volume go together as investors speculate on capital gains from reselling to more optimistic investors. But this resale option is limited for debt since its upside payoff is bounded. Debt bubbles then require an optimism bias among investors. But greater optimism leads to less speculative trading as investors view the debt as safe and having limited upside. Debt bubbles are hence quiet-high price comes with low volume. We find the predicted price-volume relationship of credits over the 2003-2007 credit boom. © 2013 Elsevier B.V.

Country
United States
Keywords

Credit, G12 D84, Political Science, Turnover, Asset prices, Banking, Applied Economics, Finance and Investment, Bubbles, Finance, jel: jel:G12, jel: jel:G02

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
68
Top 10%
Top 10%
Top 10%
Green