Bejan, Camelia and Bidian, Florin (2010): Limited enforcement, bubbles and trading in incomplete markets.

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Abstract
Rational bubbles are believed to be fragile and unable to explain the trading frenzy associated to price runups. With limited enforcement of credit contracts and endogenous debt limits designed to prevent default and allow for maximal credit expansion, a large class of bubbles can be introduced in asset prices by appropriately tightening agents' debt limits. By not affecting consumption, these bubbles are ideally suited to explain a variety of asset pricing puzzles. They can generate large increases in trade volume until they crash. Nonpositivity of debt limits restricts the potential for bubble injections to assets in zero supply or to equilibria with an infinite present value of aggregate endowment. Such equilibria are common in economies with limited enforcement, where interest rates are low to induce debt repayment (Bidian and Bejan 2012).
Item Type:  MPRA Paper 

Original Title:  Limited enforcement, bubbles and trading in incomplete markets 
Language:  English 
Keywords:  rational bubbles, limited enforcement, trade volume, equity premium puzzle, endogenous debt limits 
Subjects:  G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E44  Financial Markets and the Macroeconomy E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E50  General 
Item ID:  36819 
Depositing User:  Florin Bidian 
Date Deposited:  21 Feb 2012 04:51 
Last Modified:  29 Sep 2019 16:06 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/36819 