Related papers: To Bubble or Not to Bubble: Asset Price Dynamics a…
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…
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…
We revisit the classic paper of Tirole "Asset Bubbles and Overlapping Generations" (1985, Econometrica), which shows that the emergence of asset bubbles solves the capital over-accumulation problem. While Tirole's main insight holds with…
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…
The price-bubble and crash process formation is theoretically investigated in a two-asset equilibrium model. Sufficient and necessary conditions are derived for the existence of average equilibrium price dynamics of different agent-based…
We analyze how equilibrium housing prices are determined in the process of economic development within an overlapping generations model with perfect housing and rental markets. We characterize the rent growth rate in all equilibria. The…
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…
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…
We prove that a two-cycle equilibrium in a general equilibrium model with infinitely-lived agents (GEILA) constitutes an equilibrium in an overlapping generations (OLG) model. Conversely, an equilibrium in an OLG model that satisfies…
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…
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…
Considering a simple economy, we derive a new Hamilton-Jacobi equation which is satisfied by the value of a ''bubble'' asset. We then show, by providing a rigorous mathematical analysis of this equation, that a unique non-zero stable…
In this study, we investigate asset price bubbles in a discrete-time, discrete-state market under model uncertainty and short sales prohibitions. Building on a new fundamental theorem of asset pricing and a superhedging duality in this…
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…
The bubble is a controversial and important issue. Many methods which based on the rational expectation have been proposed to detect the bubble. However, for some developing countries, epically China, the asset markets are so young that for…
Since McCallum (1987), it is well known that in an overlapping generations (OLG) economy with land, the equilibrium is Pareto efficient because with balanced growth, the interest rate exceeds the economic growth rate ($R>G$), which rules…
For an infinite-horizon continuous-time optimal stopping problem under non-exponential discounting, we look for an optimal equilibrium, which generates larger values than any other equilibrium does on the entire state space. When the…
Recent financial bubbles such as the emergence of cryptocurrencies and "meme stocks" have gained increasing attention from both retail and institutional investors. In this paper, we propose a game-theoretic model on optimal liquidation in…
We present a general equilibrium macro-finance model with a positive feedback loop between capital investment and land price. As leverage is relaxed beyond a critical value, through the financial accelerator, a phase transition occurs from…
We construct a model of an exchange economy in which agents trade assets contingent on an observable signal, the probability of which depends on public opinion. The agents in our model are replaced occasionally and each person updates…