The Boy Who Cried Bubble: Public Warnings against Riding Bubbles

CARF Working Paper CARF-F-282, University of Tokyo

44 Pages Posted: 16 Feb 2013 Last revised: 2 Nov 2013

See all articles by Yasushi Asako

Yasushi Asako

Waseda University

Kozo Ueda

Waseda University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Multiple version iconThere are 2 versions of this paper

Date Written: October 28, 2013

Abstract

Attempts by governments to stop bubbles by issuing warnings seem unsuccessful. This paper examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it, if investors believe that a warning is issued in a definite range of periods around the bubble starting time. Moreover, the bubble may crash before the warning. If a warning involves the possibility of being issued too early regardless of the bubble starting time, then it cannot stop the bubble immediately. The bubble duration can be shortened by a public warning issued early accidentally, but lengthened if it is issued late accidentally. Our model suggests that governments need to lower the probability of spurious warnings.

Keywords: riding bubbles, crashes, public warnings, asymmetric information

JEL Classification: C72, D82, D84, E58, G12, G18

Suggested Citation

Asako, Yasushi and Ueda, Kozo, The Boy Who Cried Bubble: Public Warnings against Riding Bubbles (October 28, 2013). CARF Working Paper CARF-F-282, University of Tokyo, Available at SSRN: https://ssrn.com/abstract=2218143 or http://dx.doi.org/10.2139/ssrn.2218143

Yasushi Asako (Contact Author)

Waseda University ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku
Tokyo, Tokyo 169-8050
Japan

HOME PAGE: http://www.yasushiasako.com/

Kozo Ueda

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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