From Rational Bubbles to Crashes
We study and generalize in various ways the model of rational expectation (RE) bubbles introduced by Blanchard and Watson in the economic literature. First, bubbles are argued to be the equivalent of Goldstone modes of the fundamental rational pricing equation, associated with the symmetry-breaking introduced by non-vanishing dividends. Generalizing bubbles in terms of multiplicative stochastic maps, we summarize the result of Lux and Sornette that the no-arbitrage condition imposes that the tail of the return distribution is hyperbolic with an exponent mu
References listed on IDEAS
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- Lux, Thomas & Sornette, Didier, 2002.
"On Rational Bubbles and Fat Tails,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 34(3), pages 589-610, August.
- Thomas Lux & Didier Sornette, 1999. "On Rational Bubbles and Fat Tails," Discussion Paper Serie B 458, University of Bonn, Germany.
- Thomas Lux & D. Sornette, 1999. "On Rational Bubbles and Fat Tails," Papers cond-mat/9910141, arXiv.org.
- Y. Malevergne & D. Sornette, 2001. "Multi-dimensional rational bubbles and fat tails," Quantitative Finance, Taylor & Francis Journals, vol. 1(5), pages 533-541.
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- Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272, April. Full references (including those not matched with items on IDEAS)