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Speculative trade, asset prices and investment levels

Author

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  • Alvaro Sandroni

Abstract

In this paper I consider a dynamically complete market model without intrinsic uncertainty. Agents' beliefs are different, but correct in the limit. Some agents are more patient than others. I show that infinitely often share prices are low and the economy stagnates. Also, infinitely often share prices are high and the economy grows. The changes from growth to stagnation and from stagnation to growth are not caused by exogenous shocks. They are caused by speculative trade among agents with different propensities to save and invest. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Alvaro Sandroni, 2003. "Speculative trade, asset prices and investment levels," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 423-433, March.
    • Handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:423-433
    DOI: 10.1007/s00199-002-0297-4
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    Cited by:

    1. Patrick Leoni, 2008. "Market power, survival and accuracy of predictions in financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(1), pages 189-206, January.
    2. Patrick Leoni, 2009. "Market crashes, speculation and learning in financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(2), pages 217-229, May.

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