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 prices away from their fundamental value. This growth makes the system increasingly susceptible to any exogenous shock, thus eventually precipitating a crash...

The Japanese economy changed its features in the 1990’s, compared with the 1980’s. It shifted down to an extremely lowered growth trend. Its continuous depression with economic difficulties has gathered international concern among the advanced countries. Among the major causes for such difficulties were clearly the swell of huge bubbles in speculative trading of shares and real estate in the la...

This paper studies sequence economies over an infinite horizon with general security structures. Assumptions are given under which a pseudo-equilibrium exists for all economies and an equilibrium exists for a dense set of (appropriately parameterized) economies. Under these assumptions the indebtedness of the agents in equilibrium can be limited either by an explicit bound on their debts or by ...

In this paper we adopt an engineering method based on Al-Anaswah and Wilfling, state space model with Markov-switching, to capture the speculative bubbles of stock markets in China and US. We present the VAR log linear asset pricing model in state space model with Markov-switching, so that we can capture the unobservable speculative bubbles. Based on the dataset from Stock markets in China and ...

We investigate the role played by the anchoring-and-adjustment heuristic in the speculative bubbles dynamics. In order to link anchoring bias and price deviations from fundamental value, we develop a stock market equilibrium model with heterogeneous investors: fundamental investor anchoring to past stock market prices and noise traders. The equilibrium model we derive suggests that price is a f...

economic stabilization is one of the main government objectives in the economy. one of the most destructive and devastating factors that could damage financial markets, are price bubble formations. thus, bubble creation in stock markets can be considered as a result of investor behaviors, because the market prices mainly reflect investor expectations from firm’s future perspectives. the aim of ...

The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters. It is sometimes asserted that rational speculative activity must result in more stable prices because speculators buy when prices are low and sell when they are high. This is incorrect. Speculators buy when the chances of price appreciation are high, selling when the chan...