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Asset price bubbles

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  • Kevin J. Lansing

Abstract

Economists use the term \\"bubble\\" to describe an asset price that has risen above the level justified by economic fundamentals, as measured by the discounted stream of expected future cash flows that will accrue to the owner of the asset. The dramatic rise in U.S. stock prices during the late 1990s, followed similarly by U.S. house prices during the early 2000s, are episodes that have both been described as \\"bubbles.\\" This Economic Letter describes some research that attempts to account for the behavior of asset price bubbles.

Suggested Citation

  • Kevin J. Lansing, 2007. "Asset price bubbles," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct26.
    • Handle: RePEc:fip:fedfel:y:2007:i:oct26:n:2007-32
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    References listed on IDEAS

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    1. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
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    3. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    4. Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
    5. KevinJ. Lansing, 2010. "Rational and Near-Rational Bubbles Without Drift," Economic Journal, Royal Economic Society, vol. 120(549), pages 1149-1174, December.
    6. Stephen F. Le Roy, 2004. "Rational Exuberance," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 783-804, September.
    7. Lansing, Kevin J., 2006. "Lock-In Of Extrapolative Expectations In An Asset Pricing Model," Macroeconomic Dynamics, Cambridge University Press, vol. 10(3), pages 317-348, June.
    8. Froot, Kenneth A & Obstfeld, Maurice, 1991. "Intrinsic Bubbles: The Case of Stock Prices," American Economic Review, American Economic Association, vol. 81(5), pages 1189-1214, December.
    9. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-574, May.
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    Cited by:

    1. Lansing, Kevin, 2009. "Speculative Bubbles and Overreaction to Technological Innovation," Journal of Financial Transformation, Capco Institute, vol. 26, pages 51-54.

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