TY - JOUR AU - DeFusco, Anthony A AU - Nathanson, Charles G AU - Zwick, Eric TI - Speculative Dynamics of Prices and Volume JF - National Bureau of Economic Research Working Paper Series VL - No. 23449 PY - 2017 Y2 - May 2017 DO - 10.3386/w23449 UR - http://www.nber.org/papers/w23449 L1 - http://www.nber.org/papers/w23449.pdf N1 - Author contact info: Anthony A. DeFusco Northwestern University Kellogg School of Management 2211 Campus Drive Office 4463 Evanston, Illinois 60208 E-Mail: anthonydefusco@gmail.com Charles G. Nathanson Kellogg School of Management Northwestern University 2211 Campus Drive, Room 4479 Evanston, IL 60208-0898 E-Mail: nathanson@kellogg.northwestern.edu Eric Zwick Booth School of Business University of Chicago 5807 South Woodlawn Avenue Chicago, IL 60637 Tel: 239/822-8942 E-Mail: ezwick@chicagobooth.edu AB - We present a dynamic theory of prices and volume in asset bubbles. In our framework, predictable price increases endogenously attract short-term investors more strongly than long-term investors. Short-term investors amplify volume by selling more frequently, and they destabilize prices through positive feedback. Our model predicts a lead–lag relationship between volume and prices, which we confirm in the 2000–2011 US housing bubble. Using data on 50 million home sales from this episode, we document that much of the variation in volume arose from the rise and fall in short-term investment. ER -