The Macroeconomics of Financial Speculation

Recent Issues in Macroeconomics : Post - Financial Crisis

The recent global financial crisis has been marked by prolonged deep recessions in advanced countries. Academic researchers and policy makers have devoted much of their time and efforts to understand the effectiveness and consequences on emerging countries of non-standard macroeconomic policies adopted by advanced countries. The main goal of the annual conference of Seoul Journal of Economics 2...

Food price volatility and financial speculation

Speculation and survival in financial markets∗

The paper analyzes a finite time economy with a single risky asset which pays a one-shot payoff (dividend). The payoff is random and its distribution is not known à priori. Agents observe public signals (random draws from the same distribution) and update their beliefs about the payoff. They trade in order to reshuffle their portfolios according to new beliefs. Agents may use various updating r...

Heterogeneous Beliefs, Speculation and Trading in Financial Markets

We survey recent developments in finance that analyze how heterogeneous beliefs among investors generate speculation and trading. We describe the joint effects of heterogeneous beliefs and short-sales constraints on asset prices, using both static and dynamic models, discuss the no-trade theorem in the rational expectations framework, and present investor overconfidence as a potential source of...

Speculation and Financial Wealth Distribution under Belief Heterogeneity∗

Under limited commitment that prevents agents from pledging their future nonfinancial wealth, agents with incorrect beliefs always survive by holding on their nonfinancial wealth. Friedman (1953)’s market selection hypothesis suggests that their financial wealth trends towards zero in the long run. However, in this paper, I construct an example in dynamic general equilibrium in which over-optim...