Markets are central to modern society, so their failures can be devastating. Here, we examine a prominent failure: price bubbles. Bubbles emerge when traders err collectively in pricing, causing misfit between market prices and the true values of assets. The causes of such collective errors remain elusive. We propose that bubbles are affected by ethnic homogeneity in the market and can be thwar...

Securities markets theory includes repo and distinguishes shorting from issuing. Here we revisit whether trading alone can give rise to Ponzi schemes and rational bubbles. We show that under the same institutional arrangements that limit re-hypothecation (e.g., through segregated haircut rules or explicit leverage constraints on haircut collecting dealers), (1) trading Ponzi schemes are prevent...

This paper investigates the presence of speculative bubbles in Scandinavian countries namely Denmark, Finland, Norway, and Sweden over period from 1980Q1 to 2018Q4 searches for evidence bubble migration among those countries. First, we apply GSADF test developed by Phillips et al. (2015) on quarterly housing price-to-rent ratios exuberance episodic bubbles. Subsequently, examine between these m...

We present a dynamic theory of prices and volume in asset bubbles. In our framework, predictable price increases endogenously attract short-term investors more strongly than long-term investors. Short-term investors amplify volume by selling more frequently, and they destabilize prices through positive feedback. Our model predicts a lead–lag relationship between volume and prices, which we conf...

We study rational equilibrium asset-pricing bubbles in an economic environment in which agents are allowed to trade continuously, including as special cases some models from financial economics. For positive net supply assets, we present new necessary and sufficient conditions for the absence of bubbles in complete and incomplete markets equilibria with several types of borrowing constraints. F...