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Rational bubbles under diverse information

  • Dahai Yu
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    This paper uses a set of post-extraction information trees to generally model diverse information and agent specific state price processes to define present and fundamental values. It shows that there can be no negative or finite bubbles and that, if agents are impatient and the aggregate endowment has a finite present value under some state price process of some agent, then there can be no bubble under this state price process for any asset with positive supply.

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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 621.

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    Date of creation: 1998
    Date of revision:
    Handle: RePEc:fip:fedgif:621
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    1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
    2. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
    3. Geanakoplos, John, 1994. "Common knowledge," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 40, pages 1437-1496 Elsevier.
    4. Duffie, Darrell & Huang, Chi-fu, 1986. "Multiperiod security markets with differential information : Martingales and resolution times," Journal of Mathematical Economics, Elsevier, vol. 15(3), pages 283-303, June.
    5. Robert J Aumann, 1999. "Agreeing to Disagree," Levine's Working Paper Archive 512, David K. Levine.
    6. Paul Milgrom, 1979. "An Axiomatic Characterization of Common Knowledge," Discussion Papers 393R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Wang, Jiang, 1993. "A Model of Intertemporal Asset Prices under Asymmetric Information," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 249-82, April.
    8. Magill, M. & Quinzii, M., 1993. "Infinite Horizon Incomplete Markets," Papers 9320, Southern California - Department of Economics.
    9. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    10. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
    11. Manuel S. Santos & Michael Woodford, 1993. "Rational Asset Pricing Bubbles," Working Papers 9304, Centro de Investigacion Economica, ITAM.
    12. Levine, David K. & Zame, William R., 1996. "Debt constraints and equilibrium in infinite horizon economies with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 103-131.
    13. Chow, Gregory C., 1997. "Dynamic Economics: Optimization by the Lagrange Method," OUP Catalogue, Oxford University Press, number 9780195101928.
    14. Allen, Franklin & Gorton, Gary, 1993. "Churning Bubbles," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 813-36, October.
    15. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-78, May.
    16. Allen F. & Morris S. & Postlewaite A., 1993. "Finite Bubbles with Short Sale Constraints and Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 61(2), pages 206-229, December.
    17. Franklin Allen & Stephen Morris & Andrew Postlewaite, . "Finite Bubbles with Short Sale Constraints and Asymmetric Information (Reprint 042)," Rodney L. White Center for Financial Research Working Papers 16-92, Wharton School Rodney L. White Center for Financial Research.
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