On the Possibility of Price Decreasing Bubbles - Sciences Po Access content directly
Preprints, Working Papers, ... Year : 1989

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."
No file

Dates and versions

hal-03399135 , version 1 (23-10-2021)


  • HAL Id : hal-03399135 , version 1
  • SCIENCESPO : 2441/8683


Philippe Weil. On the Possibility of Price Decreasing Bubbles. 1989. ⟨hal-03399135⟩


12 View
0 Download


Gmail Facebook X LinkedIn More