Harrison and Kreps showed in 1978 how the heterogeneity of investor beliefs can drive speculation, leading the price of an asset to exceed its intrinsic value. By focusing on an extremely simple market model – a finite-state Markov chain – the analysis of Harrison and Kreps achieved great clarity but limited realism. Here we achieve similar clarity with greater realism, by considering an asset ...

This article studies whether there is a bubble in the price of medical masks, especially considering COVID-19 pandemic. The empirical results show that multiple bubbles exist 2020 and are correlated with related events. study alerts investors to rationally evaluate changes stock market during

In this article we are interested in option pricing in markets with bubbles. A bubble is defined to be a price process which, when discounted, is a local martingale under the risk-neutral measure but not a martingale. We do not require the underlying process to be continuous, so that Levy-based asset prices are also possible. We give examples of bubbles both where volatility increases with the ...

We present a simple model of the macroeconomy that includes a role for an assetprice bubble, and derive optimal monetary policy settings for two policy-makers. The first policy-maker, a sceptic, does not attempt to forecast the future possible paths for the asset-price bubble when setting policy. The second policy-maker, an activist, takes into account the complete stochastic implications of th...

A trivariate vector autoregression time series process, based on a present-value land price model, is used to decompose Iowa farmland prices into fundamental and non-fundamental components. A recent study, by Falk and Lee (1998), found that non-fundamental shocks are an important source of volatility in farmland prices and it was interpreted that these price movements were due to fads not specu...

Recent theoretical research shows that in asset markets vague state probabilities lead to price volatility, trading inertia, and may worsen risk-sharing efficiency, whereas Subjective Expected Utility theory implies that prices, volumes, and final allocations for risky and uncertain assets should be equivalent. We investigate experimentally whether prices, trading, and final allocations are aff...

Agent-based simulations show that some kinds of speculators are able to stabilize the price in a market and to make this market more efficient. Instead of a single market, we consider a supply chain comprising a sequence of three markets in order to check that such speculators can also stabilize a supply chain. Specifically, we verify if these speculators reduce the price fluctuations caused by...

Asset price bubbles are considered to be a major risk to fi nancial stability. In this article, we show that an asset price bubble poses a bigger risk when banks are exposed to it. This is because when the bubble bursts, banks realise losses and this may trigger bank failures and a credit crunch. In contrast, when overvalued assets are held by ordinary savers, the consequences for fi nancial st...