Asset Bubbles and Financial Friction

2021 ◽  
Author(s):  
Chenxi Wang
Keyword(s):  
Financial Friction ◽  
Asset Bubbles

scholarly journals REGRESSIVE WELFARE EFFECTS OF HOUSING BUBBLES

2019 ◽  
pp. 1-26
Author(s):  
Andrew Graczyk ◽  
Toan Phan
Keyword(s):  
Income Inequality ◽  
Interest Rates ◽  
Low Income ◽  
Market Price ◽  
Housing Price ◽  
Welfare Effects ◽  
High Income ◽  
Financial Friction ◽  
Asset Bubbles ◽  
Housing Bubbles

We analyze the welfare effects of asset bubbles in a model with income inequality and financial friction. We show that a bubble that emerges in the value of housing, a durable asset that is fundamentally useful for everyone, has regressive welfare effects. By raising the housing price, the bubble benefits high-income savers but negatively affects low-income borrowers. The key intuition is that, by creating a bubble in the market price, savers’ demand for the housing asset for investment purposes imposes a negative externality on borrowers, who only demand the housing asset for utility purposes. The model also implies a feedback loop: high-income inequality depresses the interest rates, facilitating the existence of housing bubbles, which in turn has regressive welfare effects.

Inequality and Risky Asset Bubbles

2016 ◽  
Author(s):  
Julien Bengui ◽  
Toan Phan
Keyword(s):  
Risky Asset ◽  
Asset Bubbles

scholarly journals Financial Contagion: A Tale of Three Bubbles

2021 ◽  
Vol 14 (5) ◽  
pp. 229
Author(s):  
Nathan Burks ◽  
Adetokunbo Fadahunsi ◽  
Ann Marie Hibbert
Keyword(s):  
Spillover Effects ◽  
Financial Contagion ◽  
Housing Crisis ◽  
Market Anomalies ◽  
Volatility Clustering ◽  
Asset Bubbles ◽  
Potential Benefits ◽  
Chinese Markets ◽  
Composite Indexes ◽  
Robust Evidence

The primary purpose of the study is to identify and measure the properties of asset bubbles, volatility clustering, and financial contagion during three recent financial market anomalies that originated in the U.S. and Chinese markets. In particular, we focus on the 2000 DotCom Bubble, the 2008 Housing Crisis, and the 2015 Chinese Bubble. We employ three main empirical methods; the LPPL model to identify asset bubbles, the DCC-GARCH model to measure volatility clustering, and the Diebold-Yilmaz volatility spillover index to measure the level of financial contagion. We provide robust evidence that during the DotCom bubble there was very limited spillover between the S&P 500, the Shanghai, and the Shenzhen Composite Indexes. However, there was significantly more spillover effects in the two more recent crises, i.e., the Housing crisis and the 2015 Chinese Bubble. Together, these results highlight the fact that as financial markets have become more globalized, there are greater levels of volatility transmission and correspondingly fewer potential benefits from international diversification.

Equilibrium Investment and Asset Prices under Imperfect Corporate Control

2005 ◽  
Vol 95 (3) ◽  
pp. 659-681 ◽  
Author(s):  
James Dow ◽  
Gary Gorton ◽  
Arvind Krishnamurthy
Keyword(s):  
Interest Rates ◽  
Cash Flow ◽  
Asset Prices ◽  
Yield Curve ◽  
Dynamic Equilibrium ◽  
Corporate Control ◽  
Free Cash Flow ◽  
Financial Friction ◽  
And Control ◽  
Important State

We integrate a widely accepted version of the separation of ownership and control—Michael Jensen's (1986) free cash flow theory—into a dynamic equilibrium model, and study the effect of imperfect corporate control on asset prices and investment. Aggregate free cash flow of the corporate sector is an important state variable in explaining asset prices, investment, and the cyclical behavior of interest rates and the yield curve. The financial friction causes cash-flow shocks to affect investment, and causes otherwise i.i.d. shocks to be transmitted from period to period. The shocks propagate through large firms and during booms.

The Rise of the Super-Rich

2012 ◽  
Vol 77 (5) ◽  
pp. 679-699 ◽  
Author(s):  
Thomas W. Volscho ◽  
Nathan J. Kelly
Keyword(s):  
Trade Openness ◽  
The United States ◽  
Single Equation ◽  
Economic Factors ◽  
Tax Rates ◽  
Real Estate Markets ◽  
Asset Bubbles ◽  
Equation Error ◽  
Short Run ◽  
Income Concentration

The income share of the super-rich in the United States has grown rapidly since the early 1980s after a period of postwar stability. What factors drove this change? In this study, we investigate the institutional, policy, and economic shifts that may explain rising income concentration. We use single-equation error correction models to estimate the long- and short-run effects of politics, policy, and economic factors on pretax top income shares between 1949 and 2008. We find that the rise of the super-rich is the result of rightward-shifts in Congress, the decline of labor unions, lower tax rates on high incomes, increased trade openness, and asset bubbles in stock and real estate markets.

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