IMF paper tackles puzzle of asset bubbles in efficient markets
'Rational bubble-riding' could worsen asset price booms
A working paper published yesterday by the IMF seeks to shed light on the persistent puzzle of why asset bubbles appear in markets that are well-informed, complete and staffed by experienced investors.
Author Brad Jones writes in Asset bubbles: re-thinking policy for the age of asset management, that other common explanations, including limits to learning, frictional limits to arbitrage and behavioural errors, appear "unsatisfactory".
Instead Jones finds his answer in incentives, the
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