Rational asset pricing bubbles and portfolio constraints

Julien Hugonnier

Journal of Economic Theory, 2012, vol. 147, issue 6, 2260-2302

Abstract: This article shows that portfolio constraints can give rise to rational asset pricing bubbles in equilibrium even if there are unconstrained agents in the economy who can benefit from the induced limited arbitrage opportunities. Furthermore, it is shown that bubbles can lead to both multiplicity and real indeterminacy of equilibria. The general results are illustrated by two explicitly solved examples where seemingly innocuous portfolio constraints make bubbles a necessary condition for the existence of an equilibrium.

Keywords: Rational bubbles; Portfolio constraints; General equilibrium; Limited participation; Real indeterminacy (search for similar items in EconPapers)
JEL-codes: D51 D52 D53 G11 G12 G13 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:147:y:2012:i:6:p:2260-2302

DOI: 10.1016/j.jet.2012.05.003

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