Arbeitspapier
Passive investment strategies and financial bubbles
In this paper, a model of bounded rational investors investing their portfolio in a passive investment vehicle (e.g., an Exchange Traded Fund replicating a broad index) or an actively managed fund is presented. The model proposes that the quick reswitching of these short-term oriented investors induces momentum behavior in prices. Investors prefer passsive funds in time of low risk-free rates and when active funds charge high management costs. Actively managed funds have a lower volatility but are only able to outperform the passive funds in downturns. Simulations confirm the emergence of two regimes: a regime where prices are close to fundamentals and another regime with a positive bubble. The size and the length of this bubble increases for low market liquidity and high switching speed of investors. The market volatility increases for strong reswitching activities and short-term thinking of bounded rational investors. Negative bubbles (market prices lower than fundamentals) tend to occur if active portfolio managers exhibit high risk aversion, but are less frequent than positive bubbles.
- Sprache
-
Englisch
- Erschienen in
-
Series: Darmstadt Discussion Papers in Economics ; No. 212
- Klassifikation
-
Wirtschaft
Portfolio Choice; Investment Decisions
Statistical Simulation Methods: General
Existence and Stability Conditions of Equilibrium
Computable and Other Applied General Equilibrium Models
- Thema
-
stock
market
passive
trading
financial
stability
arbitrage
trading
financial
bubbles
Heterogeneous
Agent
Model
Investmentfonds
Kapitalanlage
Portfolio-Management
Strategie
Beschränkte Rationalität
Börsenkurs
Spekulationsblase
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Fischer, Thomas
- Ereignis
-
Veröffentlichung
- (wer)
-
Technische Universität Darmstadt, Department of Law and Economics
- (wo)
-
Darmstadt
- (wann)
-
2012
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Fischer, Thomas
- Technische Universität Darmstadt, Department of Law and Economics
Entstanden
- 2012