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Bianchi, Milo
ORCID: https://orcid.org/0000-0003-4346-3147 and Jehiel, Philippe
(2025)
Bubbles and Crashes with Partially Sophisticated Investors.
TSE Working Paper, n. 25-1668, Toulouse
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Abstract
We analyze bubbles and crashes in a model in which some investors are partially sophisticated. While the expectations of such investors are endogenously determined in equilibrium, these are based on a coarse understanding of the market dynamics. We highlight how such investors may endogenously switch from euphoria to panic and how this may lead to equilibrium bubbles and crashes even in a purely speculative market in which information is complete and it is commonly understood that the bubble cannot grow forever. We also show how this setting can match stylized empirical facts, and we investigate whether bubbles may last longer when the share of fully rational traders increases.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | September 2025 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Speculative bubbles, crashes, bounded rationality. |
| JEL Classification: | C72 - Noncooperative Games D84 - Expectations; Speculations G12 - Asset Pricing; Trading volume; Bond Interest Rates |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse Capitole |
| Site: | UT1 |
| Date Deposited: | 23 Oct 2025 08:39 |
| Last Modified: | 23 Oct 2025 08:43 |
| OAI Identifier: | oai:tse-fr.eu:131050 |
| URI: | https://publications.ut-capitole.fr/id/eprint/51573 |
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