Online Appendix for “On Reaching for Yield and the Coexistence of Bubbles and Negative Bubbles”

To economize on space, all the proofs of our paper “On Reaching for Yield and the Coexistence of Bubbles and Negative Bubbles” have been relegated to this appendix. Proof of Proposition 1 The participation constraint of the intermediary is binding because otherwise the intermediary can increase its expected profit by slightly reducing  . Thus,  is given by the solution to  (̃) + (1− (̃)) ∙  + (1− )  [max ( − ̃ 0)] (1− (̃))  ̧ = ̄. (1) Solving for  gives us Eq. (11). From Eq. (7) we can solve for  which gives us  =  −  () +  ( ) . (2) Substituting  and  in the intermediary’s objective function gives us the following unconstrained maximization problem: max  Π =  − [Ψ| =  ] (3) ∗Contact: Department of Finance, Stern School of Business, New York University, 44 West 4th Street, Room 9-84, New York, NY 10012. Tel: +1 212 998 0354. Fax: +1 212 995 4256. e-mail: [email protected] †Contact: SKK GSB, #206 International Hall, Room 90338, Sungkyunkwan University, Seoul, Korea 110-745. Tel +82 2 74