On the Possibility of Price Decreasing Bubbles

Philippe Weil

SciencePo Working papers Main from HAL

Abstract: It is often argued that a rational bubble, because it is positive, must increase the price of a stock. This argument is not valid in general: as soon as bubbles affect interest rates, the fundamental value of a stock depends on whether or not a bubble is present. The existence of a rational bubble then might, by raising equilibrium interest rates, depress the fundamental to such an extent that the sum of the positive bubble and decreased fundamental falls short of the fundamental, no-bubble price. Under conditions made precise below, there can therefore be price decreasing bubbles, and an asset can be "undervalued."

Date: 1990-11
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03393366
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Published in Econometrica, 1990, 58 (6), pp.1467 - 1474

Downloads: (external link)
https://sciencespo.hal.science/hal-03393366/document (application/pdf)

Related works:
Journal Article: On the Possibility of Price Decreasing Bubbles (1990)
Working Paper: On the Possibility of Price Decreasing Bubbles (1990)
Working Paper: On the Possibility of Price Decreasing Bubbles (1989)
Working Paper: On the Possibility of Price Decreasing Bubbles (1989)
Working Paper: On The Possibility of Price Decreasing Bubbles (1989)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03393366

Access Statistics for this paper

More papers in SciencePo Working papers Main from HAL
Bibliographic data for series maintained by Contact - Sciences Po Departement of Economics ().