Multiple Rational Bubbles

48 Pages Posted: 31 Oct 2023 Last revised: 29 Feb 2024

See all articles by Jungsuk Han

Jungsuk Han

Seoul National University - College of Business Administration; Finance Theory Group (FTG)

Yenan Wang

Amsterdam Business School, University of Amsterdam

Date Written: October 2, 2023

Abstract

We explore multiple rational bubbles with varied bursting probabilities. Post-bursting, the sector contracts, while surviving bubbles gain value. Lower bursting odds lead to larger equilibrium bubbles, expanding the sector and deflating others. Fragile bubble assets, collectively, might rival a stable one due to diversification benefits. Additionally, our stationary model establishes the upper equilibrium limit, applicable to models handling price fluctuations, nonstationarity, and potential bubble formations in financial ecosystems. Our model has implications for crypto ETFs, CBDC issuance, and cryptocurrency regulations, illuminating diverse bubble dynamics.

Keywords: D53, E44, E51, E58, G01

JEL Classification: Bubble, Diversification, Stability, Cryptocurrency, CBDC

Suggested Citation

Han, Jungsuk and Wang, Yenan, Multiple Rational Bubbles (October 2, 2023). Available at SSRN: https://ssrn.com/abstract=4590068 or http://dx.doi.org/10.2139/ssrn.4590068

Jungsuk Han (Contact Author)

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Finance Theory Group (FTG) ( email )

United States

Yenan Wang

Amsterdam Business School, University of Amsterdam ( email )

Roetersstraat 18
Amsterdam, 1018 WB
Netherlands

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