We estimate the dynamics of a speculative bubble subject to surviving and collapsing regime together with dividends returns in tractable state space specification present-value model. To this new high-dimensional model, we develop an efficient Markov chain Monte Carlo sampler simulate from joint posterior distribution. find that real-world stock price bubbles show significant Markov-switching s...

We test for the existence of housing bubbles associated with a failure of the transversality condition that requires the present value of payments occurring infinitely far in the future to be zero. The most prominent such bubble is the classic rational bubble. We study housing markets in the United Kingdom and Singapore, where residential property ownership takes the form of either leaseholds o...

Rational expectations macroeconomic models frequently possess an embarrassingly large number of equilibria. One of these equilibria is the familiar neoclassical solution in which t1 e price level grows at the rate of monetary expansion but there are others in which the price level is either explosive or implosive even in models with a constant nominal supply of money. Under certain conditions i...

The paper investigates the effect of interest policy on price bubbles, trading behavior and portfolio choice in experimental stock markets. A series of experiments has 8 participants trade an asset over 15 periods. Alternatively, the participants can invest money in interest-bearing bonds. Treatment groups are subjected to an endogenous interest policy, while control groups experience a constan...

We propose that imitation between traders and their herding behaviour not only lead to speculative bubbles with accelerating over-valuations of financial markets possibly followed by crashes, but also to “anti-bubbles” with decelerating market devaluations following all-time highs. For this, we propose a simple market dynamics model in which the demand decreases slowly with barriers that progre...

We investigate the generality of the bubble and crash price pattern observed in previous asset market experiments. The deviation of prices from fundamental values can be explained by either a failure of subjects to backward induct, a learning effect, or some other explanation. We conduct experiments with a longer horizon – 200 periods – to find a possible reason for the timing of the crash. If ...

We show pathological behavior of asset price processes modeled by continuous strict local martingales under a risk-neutral measure. The inspiration comes from recent results on financial bubbles. We analyze, in particular, the effect of the strict nature of the local martingale on the usual formula for the price of a European call option, especially a strong anomaly when call prices decay monot...

We introduce a simple generalization of rational bubble models which removes the fundamental problem discovered by [20] that the distribution of returns is a power law with exponent less than 1, in contradiction with empirical data. The idea is that the price fluctuations associated with bubbles must on average grow with the mean market return r. When r is larger than the discount rate rδ , the...

I conduct an experiment to observe individual traders’ beliefs and desired behavior in a partial-equilibrium asset market. Isolated traders trade a risky asset in a market with exogenous prices. The price series exhibits a "bubble," diverging strongly from the expected dividend yield. Before trading, traders predict the asset’s price in the upcoming period, the price in the …nal period, and the...