limited liability investors contribute to asset price bubbles by increasing liquidity provision and that caps fail to tame … schemes affect liquidity provision and asset prices. Investors face a trade-off between risk and return. At the benefit of a … liquidity provision to force traders to trade at a lower price. By contrast, bonus caps make traders value the asset less than …

We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs … beliefs can thus account for speculative bubbles, without the need for irrational agents or limits to arbitrage. Many of the … shortcomings of REBs that make rational bubbles implausible can be overcome once we relax the ergodicity requirement. In particular …

experiment that regularly produces valuation bubble and crash events. Global sessions involved real time trades between subjects … asset market bubbles occur in all sessions, but global markets had significantly more extreme and longer duration valuation … bubbles. Additionally, subjects at the most suboptimal times-of-day held significantly more asset shares in their portfolios …