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The Hazards Of Propping Up: Bubbles And Chaos

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  • Philip Maymin

Abstract

In the current environment of financial distress, many governments are likely to soon become major holders of financial assets, but the policy debate focuses only on the likelihood and extent of short-term market stabilization. This paper shows that government intervention and propping up are likely to lead to long-term bubbles and even wildly chaotic behavior. The discontinuities occur when the committed capital reaches a critical amount that depends on just two parameters: the market impact of trading and the target exposure percentage.

Suggested Citation

  • Philip Maymin, 2009. "The Hazards Of Propping Up: Bubbles And Chaos," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(2), pages 83-93.
    • Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:2:p:83-93
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    References listed on IDEAS

    as
    1. Hirota, Shinichi & Sunder, Shyam, 2007. "Price bubbles sans dividend anchors: Evidence from laboratory stock markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 1875-1909, June.
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    4. Robert A. Jarrow, 2008. "Market Manipulation, Bubbles, Corners, and Short Squeezes," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 6, pages 105-130, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Philip Maymin, 2010. "The Hazards of Propping Up: Bubbles and Chaos," Papers 1002.2282, arXiv.org.

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    More about this item

    Keywords

    Government Policy and Regulation financial distress; market stabilization;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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