Consumption and bubbles

Mark Loewenstein and Gregory A. Willard

Journal of Economic Theory, 2013, vol. 148, issue 2, 563-600

Abstract: We show that an unbounded number of consumption dates is necessary to support an asset pricing bubble. We work in a continuous-time model where the number of trade dates is infinite but the number of consumption dates is flexible and can be chosen to be uniformly bounded, finite almost surely, or infinite. Market clearing, together with monotone preferences for consumption, limits the properties of bubbles and provides restrictions on wealth constraints. In the special case of a uniformly bounded number of consumption dates, assets in positive net supply cannot have asset pricing bubbles and wealth constraints cannot allow limited arbitrage.

Keywords: Bubble; Arbitrage; Wealth constraint; Asset pricing; Market clearing (search for similar items in EconPapers)
JEL-codes: D50 G12 G13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:2:p:563-600

DOI: 10.1016/j.jet.2012.07.001

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