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- Title
Intrinsic bubbles and asset price volatility.
- Authors
Drees, Burkhard; Eckwert, Bernhard
- Abstract
Under what conditions is the price of a bubbly asset more (less) volatile than the asset's market fundamental? The answer depends on agents' attitudes towards risk. If higher current consumption makes agents more (less) risk averse in the future, then the bubbly asset price fluctuates less (more) than the fundamental. This result shows that the interaction between intrinsic bubbles and asset fundamentals critically depends on a feature of the utility function that does not appear in standard models with time-separable utility.
- Subjects
ASSETS (Accounting); PRICES; RISK; CONSUMPTION (Economics); ECONOMICS
- Publication
Economic Theory, 1997, Vol 9, Issue 3, p499
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/BF01213851