From Rational Bubbles to Crashes

D. Sornette and Yannick Malevergne
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D. Sornette: Univ. Nice/CNRS and UCLA

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Abstract: We study and generalize in various ways the model of rational expectation (RE) bubbles introduced by Blanchard and Watson in the economic literature. First, bubbles are argued to be the equivalent of Goldstone modes of the fundamental rational pricing equation, associated with the symmetry-breaking introduced by non-vanishing dividends. Generalizing bubbles in terms of multiplicative stochastic maps, we summarize the result of Lux and Sornette that the no-arbitrage condition imposes that the tail of the return distribution is hyperbolic with an exponent mu

Date: 2001-02
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Citations: View citations in EconPapers (22)

Published in Physica A 299, 40-59 (2001)

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Journal Article: From rational bubbles to crashes (2001)
Working Paper: From rational bubbles to crashes (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:cond-mat/0102305

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