Download or read book Bubble-Creating Stock Market Attacks written by Ziyang Geng and published by . This book was released on 2017 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: In existing behavioral finance literature on stock mispricing, rational investors largely play a passive role in tolerating mispricing due to limits to arbitrage. In this paper, we show that rational speculators sometimes proactively and intentionally create mispricing by driving up stock prices away from their fundamental values through synchronized attacks with explosive trading volumes. The inflated stock price is subsequently supported by new rounds of irrational buyers who are subject to extrapolation bias and by existing stockholders who are reluctant to sell due to the disposition effect. This paper develops a simple model to illustrate how bubble-creating attacks can succeed in equilibrium under certain limits-to-arbitrage conditions, and provides consistent empirical evidence in the Chinese stock market using investors' trading data from a large brokerage company in China.