The Sky's the Limit: Asset price spirals when margin traders are all in * | CU Experts

We analyze a setting in which some investors are all in and buy as much of a risky asset as their margin allows. A higher price of the asset increases all-in investors' wealth, and they borrow against this wealth to buy more shares. If all-in investors have enough wealth and access to enough leverage, then prices can spiral upward indefinitely. This is true even if there exist deep pocketed investors with no explicit limits to arbitrage. Our theory applies to markets as diverse as housing, meme stocks, and cryptocurrencies.

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