Return-Preserving Bubbles

27 Pages Posted: 6 Jun 2019 Last revised: 29 Aug 2019

See all articles by Qiusha Peng

Qiusha Peng

Fanhai International School of Finance, Fudan University; School of Economics, Fudan University

Date Written: August 28, 2019


This paper introduces a bubbly asset to a standard macroeconomic model with heterogeneous agents and borrowing constraints. In this tractable quantitative framework, I show the possibility of a return-preserving bubble that absorbs savings with no good investment opportunities. Analysis of the stationary benchmark shows that the equilibrium could be unique, and that low economic growth propagates bubbles. Further exploration of the cyclicality in the bubbly asset shows that its returns are procyclical and it has a low expected rate of return that equals the expected economic growth rate. These cyclical properties are consistent with puzzling empirical results on gold.

Keywords: Heterogeneous Agents, Borrowing Constraints, Bubbles, Economic Growth, Gold

JEL Classification: E20, E44, G10, O41

Suggested Citation

Peng, Qiusha, Return-Preserving Bubbles (August 28, 2019). Available at SSRN: or

Qiusha Peng (Contact Author)

Fanhai International School of Finance, Fudan University ( email )


School of Economics, Fudan University ( email )

600 GuoQuan Road
Shanghai, 200433

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