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 finite-time singularity formula transforms a Gaussian white noise into a rich time series possessing all the stylized facts of empirical prices, as well as acc...

Economists have long conjectured that movements in stock prices may involve speculative bubbles. A speculative bubble is usually defined as the difference between the market value of a security and its fundamental value. Although there are several important theoretical issues surrounding the topic of asset bubbles, their existence is inherently an empirical issue that has not been settled. This...

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 finite-time singularity formula transforms a Gaussian white noise into a rich time series possessing all the stylized facts of empirical prices, as well as acc...

Economists have long conjectured that movements in stock prices may involve speculative bubbles. A speculative bubble is usually defined as the difference between the market value of a security and its fundamental value. Although there are several important theoretical issues surrounding the topic of asset bubbles, their existence is inherently an empirical issue that has not been settled. This...

Why are asset prices so much more volatile and so often detached from their fundamental values? Why does the bursting of …nancial bubbles depress the real economy? This paper addresses these questions by constructing an in…nite-horizon heterogeneous agent general equilibrium model with speculative bubbles. We characterize conditions under which storable goods, regardless of their intrinsic valu...

We describe a rational expectations model in which speculative bubbles in house prices can emerge. Within this model both speculators and their lenders use interestonly mortgages (IOs) rather than traditional mortgages when there is a bubble. Absent a bubble, there is no tendency for IOs to be used. These insights are used to assess the extent to which house prices in US cities were driven by s...

The presence of bubbles in the markets and its formation has been regarded by economists and they have been looking to develop methods that can be recognized by using appropriate method for the formation of bubbles. In this paper, first, the formation of bubbles is tested using the new unit root test known as Phillips test (Generalized Sup ADF test) for 50 companies in the Tehran Stock Exchange...

The purpose of this study is to investigate and identify the periods of formation and bursting of speculative bubbles in Iran's capital market by creating a state space model and two-mode switching regime (mode 1 is bubble growth and burst stage and mode 2 is the time of bubble loss) during the period from April 2011 to March 2018. The Oxmetrics 7 software is used to investigate the existence o...

These notes consider Abreu and Brunnermeier’s (2003) paper on the failure of rational arbitrage in asset markets. Recall that the “no-trade” theorem states that speculative bubbles cannot exist in a world with only rational traders even if there is asymmetric information, so long as these traders share a common prior. Believers in the efficient market hypothesis argue that even if there are als...