Rational Asset Pricing Bubbles and Debt Constraints.
The existence of a rational-bubbles component would reflect a self-confirming belief that the stock price depends on a variable (or a combination of variables) that is intrinsically irrelevant - that is, not part of market fundamentals - or on truly relevant variables in a way that involves.
In practice, many other factors yield bubble assets in reality. For example, Santos and Woodford (6) pointed out that rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework. Hugonnier (16) recently argued that portfolio constraints give rising to rational asset pricing bubbles.
Definition of Rational Bubbles: It is defined as a bubble in the rational setting.. What is Rational Bubbles. 1. It is defined as a bubble in the rational setting. It is a state in which all the agents individually know that the assets are being overvalued. Learn more in: Asset Pricing Bubbles Find more terms and definitions using our.
Empirically testing for rational bubbles under symmetric information is a challenging task. The literature has developed three types of tests: regression analysis, variance bounds tests and experimental tests. Initial tests proposed by Flood and Garber (1980) exploit the fact that bubbles cannot start within a rational asset-pricing model and hence.
In particular, we examine whether the booms in these asset prices can be justified by changes of the fundamental economic variables such as the interest rates or the growth of the real economy. A complex chain of events is needed to explain the process of asset price inflation and deflation.
An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is a situation in which asset prices appear to be based on implausible or inconsistent views about the future. It could also be described as trade in an asset at a price or price range that strongly exceeds the asset's.
Asset Bubbles and Borrowing Constraints. This essay evolved from the authors' profound disagreement with that trend.. This paper provides a fairly systematic study of rational asset pricing.