Rational bubbles in portfolios with fundamental value

Lise Clain-Chamosset-Yvrard (), Xavier Raurich () and Thomas Seegmuller ()
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Lise Clain-Chamosset-Yvrard: Université Jean Monnet Saint-Etienne, CNRS, Université Lumière Lyon 2, emlyon business school, GATE, 77 rue Michelet, 42100, Saint-Etienne, France
Xavier Raurich: Departament d’Economia and CREB, Universitat de Barcelona
Thomas Seegmuller: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, we provide a framework in which a stationary bubble can exist on a portfolio of dividend-yielding assets. Consistent with standard asset pricing theory, this portfolio bubble is defined as the difference between the portfolio market price and the present value of its future dividend stream. This bubble can coexist with a positive stationary fundamental value, without requiring the collapse of the latter over time. This result is obtained in an exchange overlapping generations economy featuring both newly issued and pre-existing financial assets that depreciate over time, and jointly constitute the asset portfolio. The introduction of new assets in each period decouples the return on bubbles from the effective discount rate applied to dividends. As a result, stationary equilibria can exist with both a positive bubble and a positive fundamental component in the portfolio value. Finally, our framework also allows us to discuss the role of the substitutability between financial assets on the level of bubbles and fundamental values.

Keywords: fundamental value; financial assets; Rational bubbles (search for similar items in EconPapers)
Date: 2025-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-05283286v1
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Published in Mathematical Social Sciences, 2025, 138, pp.102464. ⟨10.1016/j.mathsocsci.2025.102464⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-05283286

DOI: 10.1016/j.mathsocsci.2025.102464

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