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Rational bubbles on assets with a fundamental value

Author

Listed:
  • Lise Clain-Chamosset-Yvrard

    (Univ. Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69007 Lyon, France)

  • Xavier Raurich

    (xavier.raurich@ub.edu)

  • Thomas Seegmuller

    (Aix-Marseille Univ., CNRS, AMSE, Marseille, France. 5 Boulevard Maurice Bourdet CS 50498 F-13205 Marseille cedex 1, France)

Abstract

In this paper, we provide a simple framework to show the existence of stationary bubbles on dividend-yielding financial assets. These bubbles are compatible with a positive stationary fundamental value, rather than requiring its collapse in the long run. This result is obtained in an exchange overlapping generations economy with vintage financial assets that depreciate over time. New assets are introduced in each period, ensuring a constant aggregate supply of financial assets. Depreciation introduces a gap between the return of bubbles and the rate at which the dividends are discounted. Because the return of bubble can be lower or equal to the growth rate, we can have stationary equilibria with both a positive bubble and a positive fundamental value. Finally, our framework also allows us to discuss the role of the substitutability between financial assets on the level of bubbles and fundamental values.

Suggested Citation

  • Lise Clain-Chamosset-Yvrard & Xavier Raurich & Thomas Seegmuller, 2024. "Rational bubbles on assets with a fundamental value," Working Papers 2404, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    • Handle: RePEc:gat:wpaper:2404
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    More about this item

    Keywords

    Rational bubbles; financial assets; fundamental value;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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