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What are Asset Price Bubbles? A Survey on Definitions of Financial Bubbles

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  • Michael Heinrich Baumann
  • Anja Janischewski

Abstract

Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes unspecified. Due to the multitude of bubble definitions, we conduct a systematic review with the following questions: What definitions of asset price bubbles exist in the literature? Which definitions are used in which disciplines and how frequently? We develop a system of definition categories and categorize a total of 122 papers from eleven research areas. Our results show that although one definition is indeed prevalent in the literature, the overall definition landscape is not uniform. Next to the mostly used definition as deviation from a present value of expected future cash flows, we identify several other definitions, which rely on price properties or other specifications of a fundamental value. This research contributes by shedding light on the possible variations in which bubbles are defined and operationalized.

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  • Michael Heinrich Baumann & Anja Janischewski, 2025. "What are Asset Price Bubbles? A Survey on Definitions of Financial Bubbles," Papers 2502.10101, arXiv.org.
    • Handle: RePEc:arx:papers:2502.10101
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    References listed on IDEAS

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    1. Summers, Lawrence H, 1986. "Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    2. Gadi Barlevy, 2007. "Economic theory and asset bubbles," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 31(Q III), pages 44-59.
    3. Charles M. C. Lee & James Myers & Bhaskaran Swaminathan, 1999. "What is the Intrinsic Value of the Dow?," Journal of Finance, American Finance Association, vol. 54(5), pages 1693-1741, October.
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