Rational bubbles on assets with a fundamental value

Lise Clain-Chamosset-Yvrard, Xavier Raurich and Thomas Seegmuller ()
Additional contact information
Thomas Seegmuller: Aix-Marseille Univ., CNRS, AMSE, Marseille, France. 5 Boulevard Maurice Bourdet CS 50498 F-13205 Marseille cedex 1, France

No 2404, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: In this paper, we provide a simple framework where a stationary bubble on a dividend-yielding asset portfolio can exist. This bubble is compatible with a positive stationary fundamental value, rather than requiring its collapse in the long run. This result is obtained in an exchange overlapping generations economy with vintage financial assets that depreciate over time. New assets are introduced in each period, ensuring a constant aggregate supply of financial assets. Depreciation introduces a gap between the return of bubbles and the rate at which the dividends are discounted. Since the return on bubbles can be lower than or equal to the growth rate, stationary equilibria can exist with both a positive bubble and a positive fundamental component in the portfolio value. Finally, our framework also allows us to discuss the role of the substitutability between financial assets on the level of bubbles and fundamental values.

Keywords: Rational bubbles; financial assets; fundamental value (search for similar items in EconPapers)
JEL-codes: E21 E44 G12 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.gate.cnrs.fr/RePEc/2024/2404.pdf (application/pdf)

Related works:
Working Paper: Rational bubbles on assets with a fundamental value (2024)
Working Paper: Rational bubbles on assets with a fundamental value (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:2404

Access Statistics for this paper

More papers in Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon Contact information at EDIRC.
Bibliographic data for series maintained by Nelly Wirth ( this e-mail address is bad, please contact ).