Diagnostic Bubbles

Abstract

for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Positive tone and initial coin offering

“…Moreover, we expect that the impact of disclosure tone on investor decision making will be exacerbated in highly speculative markets characterised by excessive investor optimism (Bordalo et al ., 2020). Hong et al .…”

“…Perceived doubts about the fundamental value of cryptocurrency ventures and the volatility of cryptocurrency markets (Cheah and Fry, 2015; Yermack, 2015; Corbet et al ., 2018; Chaim and Laurini, 2019; Geuder et al ., 2019; Enoksen et al ., 2020; Shu and Zhu, 2020) leverage the potential benefits of a persuasive narrative to support a cryptocurrency venture, especially when it enters the market. Investor over‐optimism may be an important factor to explain relative asset price behaviour (Hong et al ., 2006; Bordalo et al ., 2020) and allows for self‐serving benefits of good marketing of the launch of a new venture. New ventures may attempt to set an initial price that is significantly higher than the cryptocurrency’s intrinsic value, and use the tone and sentiment displayed in the ICO whitepaper to inflate investor optimism during the initial coin offering.…”

“…Following the intuition of Pástor and Veronesi (2006) and Bordalo et al . (2020), good news may lead to excess optimism of investors and boost investor demand for relative assets, thus contributing to a sustained price increase and an asset price bubble.…”

“…New ventures may attempt to set an initial price that is significantly higher than the cryptocurrency's intrinsic value, and use the tone and sentiment displayed in the ICO whitepaper to inflate investor optimism during the initial coin offering. Following the intuition of Pástor and Veronesi (2006) and Bordalo et al (2020), good news may lead to excess optimism of investors and boost investor demand for relative assets, thus contributing to a sustained price increase and an asset price bubble.…”

The Macroeconomics of Financial Speculation

“…A recent literature explains asset price bubbles associated with high trading volume using models with endogenous beliefs (e.g., DeFusco et al (2017); Barberis et al (2018); Bordalo et al (2020a)).…”