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Rational equity bubbles

  • Zhou, Ge
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    This paper discusses the existence of a bubble in the pricing of an asset that pays positive dividends. I show that rational bubbles can exist in a growing economy. The existence of bubbles depends on the relative magnitudes of risk aversion to consumption and to wealth. Furthermore, I examine how an exogenous shock in technology might trigger bubbles.

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    File URL: http://mpra.ub.uni-muenchen.de/39398/1/MPRA_paper_39398.pdf
    File Function: original version
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39398.

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    Date of creation: 11 Jun 2012
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    Handle: RePEc:pra:mprapa:39398
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    Web page: http://mpra.ub.uni-muenchen.de

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    1. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
    2. Heng-fu Zou, 1995. "'The spirit of capitalism' and long-run growth," CEMA Working Papers 94, China Economics and Management Academy, Central University of Finance and Economics.
    3. Alberto Martin & Jaume Ventura, 2012. "Economic Growth with Bubbles," American Economic Review, American Economic Association, vol. 102(6), pages 3033-58, October.
    4. Noriyuki Yanagawa & Gene M. Grossman, 1992. "Asset Bubbles and Endogenous Growth," NBER Working Papers 4004, National Bureau of Economic Research, Inc.
    5. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-81, September.
    6. Stephen F. Le Roy, 2004. "Rational Exuberance," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 783-804, September.
    7. Diba, Behzad T & Grossman, Herschel I, 1988. "The Theory of Rational Bubbles in Stock Prices," Economic Journal, Royal Economic Society, vol. 98(392), pages 746-54, September.
    8. Takashi Kamihigashi, 2007. "The Spirit of Capitalism, Stock Market Bubbles, and Output Fluctuations," Discussion Paper Series 205, Research Institute for Economics & Business Administration, Kobe University, revised Oct 2007.
    9. Zhou, Ge, 2011. "Rational bubbles and the spirit of capitalism," MPRA Paper 33988, University Library of Munich, Germany.
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