Related papers: Rational Bubbles: A Clarification
A rational bubble is a situation in which the asset price exceeds its fundamental value defined by the present discounted value of dividends in a rational equilibrium model. We discuss the recent development of the theory of rational…
This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real…
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…
Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes…
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…
Asset price bubbles are situations where asset prices exceed the fundamental values defined by the present value of dividends. This paper presents a conceptually new perspective: the necessity of bubbles. We establish the Bubble Necessity…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
We study the concept of financial bubble in a market model endowed with a set of probability measures, typically mutually singular to each other. In this setting we introduce the notions of robust bubble and robust fundamental value in a…
This paper addresses the statistical properties of time series driven by rational bubbles a la Blanchard and Watson (1982), corresponding to multiplicative maps, whose study has recently be revived recently in physics as a mechanism of…
We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
Using a recently introduced rational expectation model of bubbles, based on the interplay between stochasticity and positive feedbacks of prices on returns and volatility, we develop a new methodology to test how this model classifies 9…
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…
The standard criterion of rationality in economics is the maximization of a utility function that is stable across multiple observations of an agent's choice behavior. In this paper, we discuss two notions of the money pump that…
Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic…
The substantial turmoil created by both 2000 dot-com crash and 2008 subprime crisis has fueled the belief that the two classical paradigms of economics, which are the invisible hand and the rational agent, are not appropriate to describe…
This paper develops a dynamic equilibrium model where agents exhibit a strong form of belief heterogeneity: they disagree about zero probability events. It is shown that, somewhat surprisingly, equilibrium exists in this setting, and that…
With recent advances in natural language processing, rationalization becomes an essential self-explaining diagram to disentangle the black box by selecting a subset of input texts to account for the major variation in prediction. Yet,…
We highlight a very simple statistical tool for the analysis of financial bubbles, which has already been studied in [1]. We provide extensive empirical tests of this statistical tool and investigate analytically its link with stocks…
We propose two rational expectation models of transient financial bubbles with heterogeneous arbitrageurs and positive feedbacks leading to self-reinforcing transient stochastic faster-than-exponential price dynamics. As a result of the…