Bubbles or convenience yields? A theoretical explanation with evidence from technology company equity carve-outs |
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| Authors: | Vicki Bogan |
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| Institution: | 1. Key Laboratory of Coastal Biology & Bioresources Utilization, Yantai Institute of Coastal Zone Research (YIC), Chinese Academy of Sciences (CAS), Yantai 264003, China;2. Institute for Life Sciences, Qingdao University of Science & Technology, Qingdao 266042, China;3. State Key Laboratory of Crop Biology, Shandong Agriculture University, Tai’an 271018, China;4. The Graduate University of Chinese Academy of Sciences, Beijing 100049, China;1. Technische Universität München, Arcisstrasse 21, 80290 München, Germany;2. RWTH Aachen University, Mathieustrasse 30, 52074 Aachen, Germany;3. University of Minnesota, 100 Church Street S.E., 55455 Minneapolis, MN, USA;1. GIS-CEREGE-UMR 6635, Université de Nîmes, parc scientifique Georges Besse, 30035 Nîmes, France;2. Université de Lyon, Université Jean Monnet – Sainte Etienne, CNRS UMR6524, LMV, F-42023 Saint Etienne, France;3. LSCE, UMR 1572, CNRS-CEA-UVSQ/IPSL, 91191 Saclay, France;4. IRSN/PRP-DGE/SRTG/LETIS, France;5. ANDRA, rue Jean Monnet, 92290 Chatenay-Malabry, France;6. Department of Earth Sciences, University of Waterloo, Waterloo, Ontario N2L 3G1, Canada;7. IDES, UMR CNRS – Université Paris-Sud, Bât. 504, 91405 Orsay, France;1. Państwowy Instytut Geologiczny – Państwowy Instytut Badawczy, Oddzia? Karpacki, ul. Skrzatów 1, 31-560 Kraków, Poland;2. Mineral Economy and Energy Research Institute, Polish Academy of Science, ul. Wybickiego 7, 31-261 Kraków, Poland;1. School of Information Science and Technology, Zhanjiang Normal University, Zhanjiang 524048, China;2. State Key Laboratory of Software Engineering, Wuhan University, Wuhan 430079, China;3. School of Mathematics and Computation Science, Zhanjiang Normal University, Zhanjiang 524048, China;4. School of Remote Sensing and Information Engineering, Wuhan University, Wuhan 430079, China |
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| Abstract: | This paper offers an alternative explanation for what is typically referred to as an asset pricing bubble. We develop a model that formalizes the Cochrane (2002) convenience yield theory of technology company stocks to explain why a rational agent would buy an “overpriced” security. Agents have a desire to trade but short-sale restrictions and other frictions limit their trading strategies and enable prices of two similar securities to be different. Thus, divergent prices for similar securities can be sustained in a rational expectations equilibrium. The paper also provides empirical support for the model using a sample of 1996–2000 equity carve-outs. |
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