Bubbles and the Value of Innovation

Haddad, Valentin; Ho, P.; Loualiche, Erik

doi:10.21144/wp20-08

Cited by 6 publications

(3 citation statements)

References 48 publications

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“…Evidence that bubbles have social benefits is accumulating. 13 Stock market bubbles coincide with sharply elevated corporate investment (Martin & Ventura 2018), especially by firms with important patents (Haddad, Ho & Loualiche 2020). This encourages CEOs to direct more investment to hot technologies (Dang & Xu 2018).…”

Section: Social Gains From Mania-financed Innovationmentioning

confidence: 99%

Kindleberger Cycles: Method in the Madness of Crowds?

Mørck

2022

Annu. Rev. Financ. Econ.

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Corporate R&D has a social return far above its internal rate of return to the innovating corporation, and so it is chronically underfunded from a social perspective. Kindleberger cycles, irregularly recurring stock market manias, panics, and crashes that are prominent in financial history, are also a major problem for mainstream economics. If manias inundating hot new technologies with capital sufficiently counter chronic underinvestment in innovation, economy-level selection may favor institutions and behavioral norms conducive to Kindleberger cycles despite individual agents’ losses in panics and crashes. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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Section: Social Gains From Mania-financed Innovationmentioning

confidence: 99%

Kindleberger Cycles: Method in the Madness of Crowds?

Mørck

2022

Annu. Rev. Financ. Econ.

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“…For instance, if a speculative bubble forms in nonresidential capital, it can also increase R&D investment. There is indeed some evidence that high stock valuations increase the value of patents (e.g., Haddad et al (2020)) and lead to greater R&D investment and patent production (e.g., Dang and Xu (2018)). By stimulating innovation, speculation can internalize knowledge spillovers as well as other positive externalities.…”

Section: Policy Implications With a Belief-neutral Welfare Criterionmentioning

confidence: 99%

The Macroeconomics of Financial Speculation

Simsek

2021

Annu. Rev. Econ.

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I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative bubbles, and leverage limits depend on perceived downside risks. Shifts in beliefs about downside tail scenarios can explain the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but they match better the empirical evidence on the predictability of asset returns. Even without short-selling constraints, speculation induces procyclical asset valuation. When speculation affects the price of aggregate assets, it also influences macroeconomic outcomes such as aggregate consumption, investment, and output. Speculation in the boom years reduces asset prices, aggregate demand, and output in the subsequent recession. Macroprudential policies that restrict speculation in the boom can improve macroeconomic stability and social welfare. Expected final online publication date for the Annual Review of Economics, Volume 13 is August 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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“…Dávila (2014) characterizes the optimal financial transaction tax for a given planner's belief in an environment with heterogeneous beliefs. Campbell (2016), Gabaix (2020), andExler et al (2019) also explore paternalistic policies in a household context, while Haddad, Ho and Loualiche (2020) do so in the context of technological innovations.…”

Section: Introductionmentioning

confidence: 99%