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A note on effects of rational bubble on portfolios

Chan Wang and Pu-yan Nie

Physica A: Statistical Mechanics and its Applications, 2018, vol. 492, issue C, 50-56

Abstract: In general, demand increases in wealth and decreases in price in microeconomics. We thereby propose a completely different perspective. By establishing expected utility function of investors, this article introduces one rational bubble asset and one bubble free asset in portfolios and focuses on the effects of bubble on investment portfolios from wealth and price perspectives. All conclusions are obtained by theoretical analysis with microeconomics theory. We argue that inferior goods and Giffen behavior can occur for the bubble free asset in microeconomic fields. The results can help investors to recognize bubble assets and bubble free assets more scientifically. Both bubble and bubble free assets can be inferior goods under some conditions, so we cannot to say which asset better than the other one absolutely.

Keywords: Rational bubble; Giffen behavior; Inferior goods; Game theory; Portfolios (search for similar items in EconPapers)
JEL-codes: D8 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:492:y:2018:i:c:p:50-56

DOI: 10.1016/j.physa.2017.10.008

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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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