DeLong: Econ 202b April 21, 2009 Lecture: Notes on Bubbles

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One thought on “DeLong: Econ 202b April 21, 2009 Lecture: Notes on Bubbles

  1. Susanto Basu

    Hi Brad,Nice summary. I think you have a typo in the second sentence after equation (12)–you seem to have reversed the words "utility" and "returns."Thinking again about your classic work in DSSW, I wonder if we cannot refute Friedman using a much less elegant framework where returns are exogenous. Suppose noise traders just hold a larger fraction of the risky asset (they are bullish on average). The risky asset provides higher returns. Then noise traders have higher holding returns to offset the trading losses that make them noise traders (they buy high and sell low). If they are bullish enough, can’t this by itself make them survive and thrive in terms of wealth? Why do we need the–admittedly elegant–"create your own space" effect?

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