On the Possibility of Price Decreasing Bubbles - Sciences Po Access content directly
Journal Articles Econometrica Year : 1990

On the Possibility of Price Decreasing Bubbles


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."
Fichier principal
Vignette du fichier
on-the-possibility-of-price-decreasing-bubbles.pdf (761.49 Ko) Télécharger le fichier
Origin : Publisher files allowed on an open archive

Dates and versions

hal-03393366 , version 1 (21-10-2021)


  • HAL Id : hal-03393366 , version 1
  • SCIENCESPO : 2441/8701


Philippe Weil. On the Possibility of Price Decreasing Bubbles. Econometrica, 1990, 58 (6), pp.1467 - 1474. ⟨hal-03393366⟩
39 View
22 Download


Gmail Facebook Twitter LinkedIn More