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New Perspectives on Asset Price Bubbles$
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Douglas D. Evanoff, George G. Kaufman, and A. G. Malliaris

Print publication date: 2012

Print ISBN-13: 9780199844333

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780199844333.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 25 July 2021

Churning Bubbles

Churning Bubbles

Chapter:
(p.13) Chapter 2 Churning Bubbles
Source:
New Perspectives on Asset Price Bubbles
Author(s):

Franklin Allen

Gary Gorton

Publisher:
Oxford University Press
DOI:10.1093/acprof:osobl/9780199844333.003.0002

This chapter examines whether stock prices are determined by fundamentals or whether “bubbles” can exist. After considering a stylized model of a stock market in which there are three traders, the chapter turns to the implications of agency relationships between investors and portfolio managers for asset pricing. Two types of people who can obtain the qualifications necessary to become a portfolio manager are described: good portfolio managers and bad portfolio managers. The chapter shows that some of the portfolio managers' trades are not motivated by changes in information, liquidity shocks, or risk sharing. Instead they are churning their clients' portfolios in the hope of a speculative profit.

Keywords:   stock prices, bubbles, stock market, agency, investors, portfolio managers, asset pricing, speculative profit

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