This thesis studies the field of asset price bubbles. It is comprised of three independent chapters. Each of these chapters either directly or indirectly analyse the existence or implications of asset price bubbles. The type of bubbles assumed in each of these chapters is consistent with rational expectations.
The macroeconomics of rational bubbles: a user’s guide Alberto Martin and Jaume Ventura September 2017 Abstract This paper provides a guide to macroeconomic applications of the theory of rational bubbles. It shows that rational bubbles can be easily incorporated into standard macroeconomic models.
The third essay is about an experiment that compares how team decision-making vs. individual decision-making differ in how they influence the mispricing of the asset being traded. The main result is that team decision-making does not result in smaller price bubbles. However team decision-making result in less variance among markets (sessions).Essays on speculative financial bubbles Tools. There is a plethora of research on the efficacy of unit root tests for detecting explosive rational asset price bubbles. However, the migration of these bubbles and the possibility of co-bubbling behaviour of two series have seldom been researched. In the second chapter of this thesis we apply.Essays on Asset Prices. By Sang Bong Kim. Abstract. In this dissertation I explain the relationship among inflation volatility, rational bubbles, and asset prices. In addition, I investigate the transmission of asset prices and volatility among countries. In the second chapter, which deals with the relationship between inflation volatility and.
Bubbles Markus K. Brunnermeier New Palgrave Dictionary of Economics, Second Edition, 2008 Abstract: Bubbles refer to asset prices that exceed an asset’s fundamental value because current owners believe they can resell the asset at an even higher price. There are four main strands of models: (i) all investors have rational expectations and.
The example economics essays covered in this printed booklet are: The UK’s savings ratio is estimated to be 5.6% of disposable income. Evaluate how useful the concepts of loss aversion and anchoring might be in helping to increase the savings ratio in the UK. Asset prices often experience “bubbles”.
The topics discussed include the effects of information and transaction costs on informational and allocative market efficiency, bubbles and stock price dynamics, paradox of rational expectations and the principle of limited information, uncertainty and expectation hypotheses, oil price dynamics, and nonlinearity in asset price dynamics.
The persistent failure of present-value models to explain asset price levels led academic re-search to introduce the concept of bubbles as a tool to model price deviations from present-value relations. The early literature was dominated by models in which all agents were as-sumed to be rational and yet a bubble could exist.
Bubbles can also be ruled out if there is a maximum possible price that the asset can have. Consider, for example, the question of whether there can be a bubble on the price of diamonds. Suppose that there is a fixed supply of natural diamonds in existence, but suppose that new artificial diamonds can be made at some price, that is diamonds can be made at a cost 4 times higher than the.
The important result of Santos and Woodford (1997) says that price bubbles cannot exist in equilibrium in the standard dynamic asset pricing model with rational agents facing borrowing constraints as long as assets are in strictly positive supply and the present value of total future resources is finite.
Why do asset price bubbles continue to appear in various markets? This paper provides an overview of recent literature on bubbles, with significant attention given to behavioral models and rational models with frictions. Unlike the standard rational models, the new literature is able to model the common characteristics of historical bubble episodes and offer insights for how bubbles are.
Downloadable! I examine the impact of alternative monetary policy rules on a rational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interest rates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth.
It creates bubbles of assets that need to burst one day. One reason for saving the borrowers from risks created by the investors is collateralization of the debts. The best and a live example would be Iphone the company is in the USA and factories and manufactures the Iphone is in China and assemble in USA these are all the best example of interdependence Costs Of Globalisation.
The financial crisis of 2008 all started when Christopher Cox, the chairman of the Securities and Exchange Commission, passed an exemption on the regulations for the big five investment banks. The meeting on April 28, 2004 was “an urgent plea by the big investment banks.”.
The idea is to stay reasonably consistent with the literature but also to check that price-to-book is not driving the bus (the major exception for using price-to-book sorting is one later chart where I study a price-to-sales sorted portfolio as a robustness check 11 11 Close That is, just because you formed a long-short portfolio on price-to-book, you’re free to judge it on, say, price-to.