publication . Preprint . 2012

Rational Asset Pricing Bubbles Revisited

Jan Werner;
Open Access
  • Published: 01 Jan 2012
Abstract
Price bubble arises when the price of an asset exceeds the asset's fundamental value, that is, the present value of future dividend payments. The important result of Santos and Woodford (1997) says that price bubbles cannot exist in equilibrium in the standard dynamic asset pricing model with rational agents as long as assets are in strictly positive supply and the present value of total future resources is finite. This paper explores the possibility of asset price bubbles when either one of the sufficient conditions for non-existence of bubbles is violated. We demonstrate that there always exist equilibria with price bubbles on assets in zero supply. Further, w...
Subjects
arXiv: Computer Science::Computer Science and Game TheoryComputer Science::Computational Engineering, Finance, and Science
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