Bubbly fundamentals

Takeo Hori (), Ryonghun Im () and Hiroshi Nakaota ()
Additional contact information
Takeo Hori: Department of Industrial Engineering and Economics, School of Engineering, Institute of Science Tokyo
Ryonghun Im: School of Economics, Kwansei Gakuin University
Hiroshi Nakaota: Faculty of Economics, Osaka University of Economics

No 278, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Increases in the price-to-dividend (P/D) ratio have been observed during bubble periods. Under rational bubble theory, bubbles are characterized by the divergence of the P/D ratio to infinity. However, in the 2010s, asset prices surged to bubble-era levels with no corresponding rise in the P/D ratio. Based on this observation, we construct a macroeconomic model in which asset prices can be high or low under a constant P/D ratio. The endogenous credit constraints yield multiple equilibria with high and low asset prices. In both equilibria, asset prices were determined entirely by the sum of the expected future dividends and influence macroeconomic performance. Our non-bubble model reproduces most of the theoretical results from rational bubble models, highlighting the difficulty of detecting asset bubbles solely from asset prices, even within theoretical frameworks, and underscoring the need for models that facilitate a straightforward calculation of the P/D ratio or fundamental value of assets.

Keywords: asset bubbles; fundamental value; credit constraints; self-fulfilling expectation; multiple equilibria (search for similar items in EconPapers)
JEL-codes: E44 G01 G12 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2024-09, Revised 2025-03
New Economics Papers: this item is included in nep-fdg and nep-ipr
References: Add references at CitEc
Citations:

Downloads: (external link)
http://192.218.163.163/RePEc/pdf/kgdp278.pdf Revised version, 2025 (application/pdf)

Related works:
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:kgu:wpaper:278

Access Statistics for this paper

More papers in Discussion Paper Series from School of Economics, Kwansei Gakuin University Contact information at EDIRC.
Bibliographic data for series maintained by Toshihiro Okada ().