Rational bubbles on assets with a fundamental value

Lise Clain‐chamosset‐yvrard (), Xavier Raurich and Thomas Seegmuller ()
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Lise Clain‐chamosset‐yvrard: UL2 - Université Lumière - Lyon 2, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique
Thomas Seegmuller: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, we provide a simple framework to show the existence of stationary bubbles on dividend-yielding financial assets. These bubbles are 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. Because the return of bubble can be lower or equal to the growth rate, we can have stationary equilibria with both a positive bubble and a positive fundamental 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)
Date: 2024-02-22
Note: View the original document on HAL open archive server: https://hal.science/hal-04493331v1
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Working Paper: Rational bubbles on assets with a fundamental value (2024)
Working Paper: Rational bubbles on assets with a fundamental value (2024)
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