Asset Price Bubbles: A Selective Survey

42 Pages Posted: 7 Mar 2013

Date Written: February 2013


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 initiated and sustained, the reasons they burst, and why arbitrage forces do not routinely step in to squash them. The latest U.S. real estate bubble is described in the context of this literature.

Keywords: Asset prices, Bubbles, Business cycles, Economic models, Financial Crisis., Investment, Limits to Arbitrage, asset bubbles, asset markets, bond, bond rating, bond ratings, bonds, cash flow, cash flows, corporate bonds, derivative, derivative contract, discount rate, discounted cash flows, financial economics, financial innovation, financial liberalization, financial markets, financial sector, financial stability, future cash flows, hedge, hedge fund, hedge fund managers, hedge funds, hedging, housing construction, housing supply, moral hazard, mortgage, mortgage lenders, mortgage loan, mortgage loans, mortgage payment, mortgage payments, mortgage rates, mortgage-backed securities, mortgages,

JEL Classification: G00, G01, G10

Suggested Citation

Scherbina, Anna D., Asset Price Bubbles: A Selective Survey (February 2013). IMF Working Paper No. 13/45, Available at SSRN:

Anna D. Scherbina (Contact Author)

Brandeis University ( email )

415 South Street
Waltham, MA 02453
United States


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