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Existence of speculative bubbles when time-horizons are finite

Author

Listed:
  • 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.

Suggested Citation

  • Shaheen Seedat & Alexander Zimper, 2012. "Existence of speculative bubbles when time-horizons are finite," Economics Bulletin, AccessEcon, vol. 32(1), pages 251-259.
    • Handle: RePEc:ebl:ecbull:eb-11-00710
    as

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    References listed on IDEAS

    as
    1. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-678, May.
    2. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-1048, November.
    3. Brunnermeier, Markus K., 2001. "Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding," OUP Catalogue, Oxford University Press, number 9780198296980.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Speculative behavior; bounded rationality; Lebesgue integral;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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