Munich Personal RePEc Archive

Rational equity bubbles

Zhou, Ge (2012): Rational equity bubbles. Forthcoming in:

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Abstract

This paper discusses the existence of a bubble in the pricing of an asset that pays positive dividends. I show that rational bubbles can exist in a growing economy. The existence of bubbles depends on the relative magnitudes of risk aversion to consumption and to wealth. Furthermore, I examine how an exogenous shock in technology might trigger bubbles.

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