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Asset Float and Speculative Bubbles





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    • The authors are from the Department of Economics and Bendheim Center for Finance, Princeton University. Scheinkman and Xiong are also affiliated with the NBER. We thank the National Science Foundation for financial support. We also thank Alon Brav, Itay Goldstein, Rodrigo Guimaraes, Lasse Pedersen, Jay Ritter, Rob Stambaugh, Jeremy Stein, Dimitri Vayanos, and especially an anonymous referee, as well as seminar participants at the Association Française de Finance Meetings, Columbia University, DePaul University-Chicago Federal Reserve, Duke University, HEC, INSEAD, the National University of Singapore, the NBER Asset Pricing Meeting, New York University, SEC, University of Florida, University of Iowa, Université Paris-Dauphine, the Western Finance Association Meetings, and the Wharton School for their comments and suggestions.


We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors with heterogeneous beliefs and short-sales constraints trade a stock with limited float because of insider lockups. A bubble arises as price overweighs optimists' beliefs and investors anticipate the option to resell to those with even higher valuations. The bubble's size depends on float as investors anticipate an increase in float with lockup expirations and speculate over the degree of insider selling. Consistent with the internet experience, the bubble, turnover, and volatility decrease with float and prices drop on the lockup expiration date.

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