Multiple Rational Bubbles

49 Pages Posted: 31 Oct 2023 Last revised: 28 May 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 levels of confidence. Post-bursting, aggregate bubble size contracts, while surviving bubbles gain value. Greater confidence in a bubble increases its size, expanding aggregate bubble size but deflating others. Fragile bubble assets, collectively, might rival a stable one due to diversification benefits. Our stationary model provides practical insight into bubble behavior by offering a theoretical upper bound on aggregate bubble size, 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
75
Abstract Views
234
Rank
588,154
PlumX Metrics