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Edition: U.S. Article Comments (0) Follow Reuters Facebook Twitter RSS YouTube Read Anthony insisted nanny took girl, even after admitting lies 3:16pm EDT Pyramid tossed, dinner plate is new U.S. meals plan 2:46pm EDT Moody's may cut BofA, Citi, Wells ratings 4:25pm EDT Romney kicks off presidential bid, blasts Obama 2:28pm EDT Google reveals Gmail hacking, says likely from China | 8:08am EDT Discussed 70 150 economists back U.S. Republicans in debt fight 52 Air France jet crashed nose-up after 4 minute ordeal 39 Debt-limit hike fails in House in symbolic vote Watched Tornado hits Springfield, Massachusetts 2:43am EDT Massive Australian waterspout caught on film Mon, May 30 2011 Scientists revive ancient spider in stunning 3D detail Tue, May 24 2011 LinkedIn shares were a bubble: academic model Tweet Share this Email Print Related News Greece hopes buoy Wall Street, but investors still wary Tue, May 31 2011 LinkedIn options to start trading in U.S. on Friday Thu, May 26 2011 Asian demand tepid as Glencore makes lackluster HK debut Wed, May 25 2011 Search engine Yandex up 55 percent on debut Tue, May 24 2011 UPDATE 6-Yandex lifts IPO price in Internet frenzy Mon, May 23 2011 Analysis & Opinion The stocks-housing disconnect Value buying to emerge in key large caps Related Topics Technology » Personal Finance » By Clare Baldwin NEW YORK | Thu Jun 2, 2011 2:23pm EDT NEW YORK (Reuters) - Three academics say there was a bubble in LinkedIn Corp's shares during the first four days of its trading, which they have determined definitively using a model they designed. The three have devised a model they say can establish in real time whether prices in a market are doomed to collapse. If investors can spot speculative excess in short order, they can avoid overheated markets and better allocate their capital, said Cornell University finance professor Robert Jarrow, who wrote the paper along with Ecole Polytechnique's Younes Kchia and Columbia University's Philip Protter, both mathematicians. "If enough people think there is a bubble and not enough people want to hold it, maybe the bubbles will disappear before they get too large," Jarrow told Reuters. The model, described in a paper currently being peer-reviewed for publication, compares the size of price fluctuations, known as "volatility," with the volatility of a normal stock, which is a stock whose price is what you would pay if you held it forever. If the volatility in the stock you are testing is higher than that of a normal stock, there is a bubble. Take social networking company LinkedIn Corp, for example. The company's shares more than doubled on their first day of trade on the New York Stock Exchange and closed on May 24 -- the fourth and final day of trade run through the model -- at still more than double their IPO price. The shares have since given up some of their gains, but closed on Wednesday, after just 9 days of trading, at more than 70 percent above their IPO price. Some people would intuitively argue that the speedy share gains indicate a bubble. But the model can prove it: it shows that as LinkedIn's stock price increased, the rate of increase of volatility was abnormally large. The model has been successfully tested against some of the stocks believed to have been bubbles in the 2000 to 2002 dot-com era, according to the paper. HELP FOR THE FED Investors aren't the only ones who stand to benefit from knowing when bubbles are arising. The Federal Reserve could use its regulatory power to tighten rules for lending in markets that seem to be overheating. Federal Reserve Chairman Ben Bernanke noted in Congressional testimony in 2009 that it is extraordinarily difficult to tell in real time when a bubble is arising, echoing statements from former Fed Chairman Alan Greenspan. The issue even came up, recently, in relation to LinkedIn. When LinkedIn shares jumped 109.4 percent on their first day of trade, Chicago Fed President Charles Evans said he was withholding judgment over whether a new dot-com bubble was under way. "I have no way of knowing that those aren't just exactly the right valuations," Evans told reporters after a speech in Chicago. (Additional reporting by Jennifer Saba; Editing by Dan Wilchins and Muralikumar Anantharaman) Technology Personal Finance Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. Comments (0) Be the first to comment on reuters.com. Add yours using the box above. 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