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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: https://mpra.ub.uni-muenchen.de/39398/1/MPRA_paper_39398.pdf
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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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  1. Alberto Martin & Jaume Ventura, 2003. "Economic growth with bubbles," Economics Working Papers 848, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2011.
  2. Noriyuki Yanagawa & Gene M. Grossman, 1992. "Asset Bubbles and Endogenous Growth," NBER Working Papers 4004, National Bureau of Economic Research, Inc.
  3. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
  4. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
  5. Takashi Kamihigashi, 2008. "The spirit of capitalism, stock market bubbles and output fluctuations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(1), pages 3-28.
  6. Zhou, Ge, 2011. "Rational bubbles and the spirit of capitalism," MPRA Paper 33988, University Library of Munich, Germany.
  7. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-81, September.
  8. Kocherlakota, Narayana R., 1992. "Bubbles and constraints on debt accumulation," Journal of Economic Theory, Elsevier, vol. 57(1), pages 245-256.
  9. 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.
  10. Stephen F. Le Roy, 2004. "Rational Exuberance," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 783-804, September.
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