Yue Shen Ph.D. in Economics (July 2015) I am now a lecturer at the Sobey School Business, Saint Mary's University, Halifax, NS My new webpage is here Curriculum vitae Research Interests: Microeconomic Theory, Financial Economics, Asset Bubbles, Financial Crises, Networks and Game Theory.

Econ 212 Microeconomic Theory I at Queen's University in Winter 2015
Economics 3353A International Finance at Western University (London, Ontario) in Fall 2014

Abstract: In this paper we investigate the effects of capital gains tax and transaction cost on asset bubbles. We construct a model of asset bubbles by incorporating purchase into the framework of Abreu and Brunnermeier (2003) so that capital gains can be evaluated. We find that the capital gains tax helps deflate the bubble, but the capital loss tax credit tends to offset this deflating effect. Under a perfect tax credit, the tax has no effect on the size of the bubble at all. Therefore dealing with bubbles with the capital gain tax not only requires imposing the tax, but also requires tightening the policies on tax credit. We also show that the size of the bubble is decreasing in the transaction cost and the return from outside option, and marginal effects of a small cost and outside option on the bubble are very large. This implies that a central bank's interest policies could have dramatic inflating effect on bubbles when it further lowers interest rates when they are already very low. To show that our results can empirically be tested, we explore several historical bubbles. We normalize their sizes by the belief dispersion in each bubble so that we can compare the effects of other factors such as taxes and transaction costs on these bubbles. We also discuss how to infer the belief dispersion from actual price path in the absence of explicit data on belief.

Abstract: In this paper we explore the fundamental question of why bubbles exist. We construct a simple model of asset bubble and show that the model is equivalent to a reverse common value auction and that bubbles exist. By decomposing equilibrium bidding strategies into two components (incentives), we show that bubbles arise because this is a discriminatory price (first-price) auctions, i.e. a trader's payoff is exactly her bidding price, while in a uniform price (second-price) auction there is no bubble. Based on this finding, experiments are devised to offset these incentives and reduce or eliminate bubbles.

Abstract: This paper investigates the coordination among investors on the fundamental value of assets that are affected by underlying macroeconomic conditions. Each investor receives private signals, infer others' information and decide whether hold or sell repeatedly, which constitutes a dynamics global game. When investors are interconnected by their overlapping portfolios on many assets, their decisions on coordination game on each asset can become contagious and their beliefs about the underlying macroeconomic conditions converge. In equilibrium, investors gradually learn the economy state and their coordination in turn confirms and strengthens this state.

Professor James Bergin (advisor)

Professor Frank Milne (advisor)

Professor Ruqu Wang

Professor Peter Streufert (on teaching)