Related papers: Bubble Economics
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
This paper studies the equilibrium price of a continuous time asset traded in a market with heterogeneous investors. We consider a positive mean reverting asset and two groups of investors who have different beliefs on the speed of mean…
As we show using the notion of equilibrium in the theory of infinite sequential games, bubbles and escalations are rational for economic and environmental agents, who believe in an infinite world. This goes against a vision of a self…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws…
In this paper we study the evolution of asset price bubbles driven by contagion effects spreading among investors via a random matching mechanism in a discrete-time version of the liquidity based model of [25]. To this scope, we extend the…
We consider a banking network represented by a system of stochastic differential equations coupled by their drift. We assume a core-periphery structure, and that the banks in the core hold a bubbly asset. The banks in the periphery have not…
We seek to deepen understanding of the micro-foundations of institutionalization while contributing to a sociological theory of markets by investigating the puzzle of price bubbles in financial markets. We find that such markets, despite…
We extend the model of rational bubbles of Blanchard and of Blanchard and Watson to arbitrary dimensions d: a number d of market time series are made linearly interdependent via d times d stochastic coupling coefficients. We first show that…
This paper introduces a new approach for bubble detection based on mixed causal and noncausal autoregressive processes and their tail process representation during an explosive episode. Departing from traditional definitions of bubbles as…
Recently research on bubble and its burst attract much interest of researchers in various field such as economics and physics. Economists have been regarding bubble as a disorder in prices. However, this research strategy has overlooked an…
We define and study a rather complex market model, inspired from the Santa Fe artificial market and the Minority Game. Agents have different strategies among which they can choose, according to their relative profitability, with the…
Tirole (1985) studied an overlapping generations model with capital accumulation and showed that the emergence of asset bubbles solves the capital over-accumulation problem. His Proposition 1(c) claims that if the dividend growth rate is…
We study and generalize in various ways the model of rational expectation (RE) bubbles introduced by Blanchard and Watson in the economic literature. First, bubbles are argued to be the equivalent of Goldstone modes of the fundamental…
Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as…
Rational pure bubble models feature multiple (and often a continuum of) equilibria, which makes model predictions and policy analyses non-robust. We show that when the interest rate in the fundamental equilibrium is below the economic…
By investigating nonfungible tokens (NFTs), we provide the first systematic study of retail investor behavior through asset bubbles. Given that NFTs are recorded in public blockchains, we are able to track investor behavior over time,…
This is a supplement to the paper "Liquidity based modeling of asset price bubbles via random matching". The supplement is organized as follows. First, we prove Theorem 3.13 in [1] which provides the existence of the dynamical system D…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We present a macro-finance model with innovation and knowledge spillover. Skilled agents engage in R&D activities (establish firms) or work in the knowledge-intensive sector. Unskilled agents work in the traditional sector. Knowledge…
We show that a simple model of a spatially resolved evolving economic system, which has a steady state under simultaneous updating, shows stable oscillations in price when updated asynchronously. The oscillations arise from a gradual…