Bubbles

Markus K. Brunnermeier

doi:10.1057/978-1-349-95189-5_44

Bubbles

Markus K. Brunnermeier

Research output: Chapter in Book/Report/Conference proceeding › Chapter

Abstract

Bubbles refer to asset prices that exceed an asset’s fundamental value because current owners believe they can resell the asset at an even higher price. There are four main strands of models: (i) all investors have rational expectations and identical information, (ii) investors are asymmetrically informed and bubbles can emerge because their existence need not be commonly known, (iii) rational traders interact with behavioural traders and bubbles persist since limits to arbitrage prevent rational investors from eradicating the price impact of behavioural traders, (iv) investors hold heterogeneous beliefs, potentially due to psychological biases, and agree to disagree about the fundamental value.

Original language	English (US)
Title of host publication	The New Palgrave Dictionary of Economics, Third Edition
Publisher	Palgrave Macmillan
Pages	1114-1121
Number of pages	8
ISBN (Electronic)	9781349951895
ISBN (Print)	9781349951888
DOIs	https://doi.org/10.1057/978-1-349-95189-5_44
State	Published - Jan 1 2018

All Science Journal Classification (ASJC) codes

General Economics, Econometrics and Finance
General Business, Management and Accounting

Keywords

Arbitrage
Asset-pricing models
Asymmetric information
Autocorrelation
Backward induction
Bubbles
Centipede game
Central limit theorems
Co-integration
Efficient markets hypothesis
Fiat money
Gains from trade
Hedge funds
Limited liability
Noise traders
Overlapping generations model
Rational expectations
Risk aversion
Transversality condition
Unit roots

Access to Document

10.1057/978-1-349-95189-5_44

Cite this

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title = "Bubbles",

abstract = "Bubbles refer to asset prices that exceed an asset{\textquoteright}s fundamental value because current owners believe they can resell the asset at an even higher price. There are four main strands of models: (i) all investors have rational expectations and identical information, (ii) investors are asymmetrically informed and bubbles can emerge because their existence need not be commonly known, (iii) rational traders interact with behavioural traders and bubbles persist since limits to arbitrage prevent rational investors from eradicating the price impact of behavioural traders, (iv) investors hold heterogeneous beliefs, potentially due to psychological biases, and agree to disagree about the fundamental value.",

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doi = "10.1057/978-1-349-95189-5\_44",

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N1 - Publisher Copyright: © The Editor(s) (if applicable) and The Author(s) 2018.

PY - 2018/1/1

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N2 - Bubbles refer to asset prices that exceed an asset’s fundamental value because current owners believe they can resell the asset at an even higher price. There are four main strands of models: (i) all investors have rational expectations and identical information, (ii) investors are asymmetrically informed and bubbles can emerge because their existence need not be commonly known, (iii) rational traders interact with behavioural traders and bubbles persist since limits to arbitrage prevent rational investors from eradicating the price impact of behavioural traders, (iv) investors hold heterogeneous beliefs, potentially due to psychological biases, and agree to disagree about the fundamental value.

AB - Bubbles refer to asset prices that exceed an asset’s fundamental value because current owners believe they can resell the asset at an even higher price. There are four main strands of models: (i) all investors have rational expectations and identical information, (ii) investors are asymmetrically informed and bubbles can emerge because their existence need not be commonly known, (iii) rational traders interact with behavioural traders and bubbles persist since limits to arbitrage prevent rational investors from eradicating the price impact of behavioural traders, (iv) investors hold heterogeneous beliefs, potentially due to psychological biases, and agree to disagree about the fundamental value.

KW - Arbitrage

KW - Asset-pricing models

KW - Asymmetric information

KW - Autocorrelation

KW - Backward induction

KW - Bubbles

KW - Centipede game

KW - Central limit theorems

KW - Co-integration

KW - Efficient markets hypothesis

KW - Fiat money

KW - Gains from trade

KW - Hedge funds

KW - Limited liability

KW - Noise traders

KW - Overlapping generations model

KW - Rational expectations

KW - Risk aversion

KW - Transversality condition

KW - Unit roots

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DO - 10.1057/978-1-349-95189-5_44

M3 - Chapter

AN - SCOPUS:105011010876

SN - 9781349951888

SP - 1114

EP - 1121

BT - The New Palgrave Dictionary of Economics, Third Edition

PB - Palgrave Macmillan

ER -

Bubbles

Abstract

All Science Journal Classification (ASJC) codes

Keywords

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