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Existence of speculative bubbles when time-horizons are finite

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  • Shaheen Seedat

    ()
    (Said Business School, University of Oxford)

  • Alexander Zimper

    ()
    (Department of Economics, University of Pretoria)

Abstract

This note extends the existing literature on speculative bubbles by allowing for arbitrary trading sequences. As our main result we prove that bubbles may exist in a myopic rational expectations equilibrium (Radner 1979) if and only if every agent expects infinitely many trading opportunities to exist. For finite horizons our finding implies the possible existence of bubbles under the plausible bounded rationality condition that every agent believes he will not end-up with holding the asset when the bubble bursts.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P23.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 251-259

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Handle: RePEc:ebl:ecbull:eb-11-00710

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Related research

Keywords: Speculative behavior; bounded rationality; Lebesgue integral;

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  1. Brunnermeier, Markus K., 2001. "Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding," OUP Catalogue, Oxford University Press, number 9780198296980, September.
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