Valuation bubbles and sequential bubbles

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Economic Theory, vol 15, pg 253-278,
To cite or link this document: Huang, Kevin X.D. Werner, Jan
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa 1997-06-01
dc.identifier.citation Economic Theory, vol 15, pg 253-278,
dc.description.abstract Price bubbles in an Arrow-Debreu valuation equilibrium in infinite-time economy are a manifestation of lack of countable additivity of valuation of assets. In contrast, known examples of price bubbles in sequential equilibrium in infinite time cannot be attributed to the lack of countable additivity of valuation. In this paper we develop a theory of valuation of assets in sequential markets (with no uncertainty) and study the nature of price bubbles in light of this theory. We consider an operator, called payoff pricing functional, that maps a sequence of payoffs to the minimum cost of an asset holding strategy that generates it. We show that the payoff pricing functional is linear and countably additive on the set of positive payoffs if and only if there is no Ponzi scheme, and provided that there is no restriction on long positions in the assets. In the known examples of equilibrium price bubbles in sequential markets valuation is linear and countably additive. The presence of a price bubble indicates that the asset's dividends can be purchased in sequential markers at a cost lower than the asset's price. We also present examples of equilibrium price bubbles in which valuation is nonlinear but not countably additive.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 303
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.title Valuation bubbles and sequential bubbles
dc.title.alternative Asset price bubbles in Arrow-Debreu and sequential equilibrium
dc.type info:eu-repo/semantics/workingPaper 2016-06-04T02:50:23Z
dc.subject.keyword Finance and Accounting
dc.subject.keyword asset price bubbles
dc.subject.keyword linear valuation
dc.subject.keyword sequential equilibria
dc.subject.keyword valuation equilibria
dc.rights.accessRights info:eu-repo/semantics/openAccess

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