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On the Inception of Financial Representative Bubbles

Author

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  • Massimiliano Ferrara

    (Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
    Decisions Lab, Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
    Invernizzi Center for Research on Innovation, Organization, Strategy and Entrepreneurship, Department of Management and Technology, Bocconi University, Via Sarfatti 25, 20136 Milano, Italy
    These authors contributed equally to this work.)

  • Bruno A. Pansera

    (Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
    Decisions Lab, Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
    These authors contributed equally to this work.)

  • Francesco Strati

    (Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
    Decisions Lab, Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
    These authors contributed equally to this work.)

Abstract

In this work, we aim to formalize the inception of representative bubbles giving the condition under which they may arise. We will find that representative bubbles may start at any time, depending on the definition of a behavioral component. This result is at odds with the theory of classic rational bubbles, which are those models that rely on the fulfillment of the transversality condition by which a bubble in a financial asset can arise just at its first trade. This means that a classic rational bubble (differently from our model) cannot follow a cycle since if a bubble exists, it will burst by definition and never arise again.

Suggested Citation

  • Massimiliano Ferrara & Bruno A. Pansera & Francesco Strati, 2017. "On the Inception of Financial Representative Bubbles," Mathematics, MDPI, vol. 5(4), pages 1-9, November.
    • Handle: RePEc:gam:jmathe:v:5:y:2017:i:4:p:64-:d:119312
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    References listed on IDEAS

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