Price Bubbles Research Articles

Financial Bubbles in Infinitely Repeated Auctions with Tokens

An auctioneer holds an infinite sequence of private value auctions. He can accept payments in a blockchain-based token that he creates and initially owns. I show that relative to a standard auction with dollars, the present-discounted value of the expected revenues is higher whenever financial bubbles on tokens emerge, which happens when the rate at which investors use their tokens for bidding is sufficiently low. Financial bubbles can also emerge if the auctioneer uses dollars and issues equity. But in this case, a bubble is possible only if an increasing amount of aggregate wealth is invested in equity, which seems counterfactual.

Literature Review on Detecting Bubbles in Stock Market

Stock market bubbles are times when valuation dynamics are momentarily explosive. Stock bubbles can be interpreted as a deviation of stock prices from their fundamental value. LPPLS is one of model to calculate bubble, which assuming that an asset's observed price trend during a bubble era differs from its intrinsic fundamental value. This research is qualitative study or descriptive research to review the LPPLS as a model to calculate bubbles in stock. This study uses secondary data sourced from articles which published in Scopus Indexed International Journal. The conclusion of the research that the LPPLS model can calculate, predict and identify accurately bubbles related historical event such as the black Monday, dot com, and subprime crisis periods. The LPPLS model has the advantage, including construct end of bubble signals accurately.

Managing Bubbles in Experimental Asset Markets with Monetary Policy

AbstractWe study the effect of a “leaning against the wind” monetary policy on asset price bubbles in a learning‐to‐forecast experiment, where prices are driven by the expectations of market participants. We find that a strong interest rate response is successful in preventing or deflating large price bubbles, while a weak response is not. Giving information about the interest rate changes and communicating the goal of the policy increases coordination of expectations and has a stabilizing effect. When the steady‐state fundamental price is unknown and the interest rate rule is based on a proxy instead, the policy is less effective.

The Lost Decade: Research on the Japanese Asset Price Bubble

Due to the burst of Japanese asset price bubble in 1989s, Japan’s economy has started a clearly great depression, specifically manifest as downturn in GDP, decline in economic activity, decrease in the general price level, and manufacturing sector in recession. The burst of bubble directly shows as expansion on credit and money supply, overheating in assets market and economic activity. This paper aims on elaborating and analyzing Japanese unique economic development history after Second World War. This paper also focuses on how the Japanese economic miracle happened and how does Japanese economic miracle came into asset price bubble. Based on those economic policies implemented by Japanese government, including zero interest rate policy (ZIRP), negative interest rate, quantitative easing (QE), qualitative quantitative easing (QQE), and the three arrows of Shinzo Abe, this paper analyzes those policies in economic direction. This paper also researches on some other potentials and secondary influences on Japanese economy, such as Japanese corporate system since 1600s, the involvement of the USA, the plaza accord, several Japanese bank’s bad loans.

Asset bubbles, entrepreneurial risks, and economic growth

Entrepreneurs are exposed to large uninsured risks, which may discourage them from creating productive assets. This may generate productive asset shortages and stimulate speculative demand for bubbles. This study introduces uninsured entrepreneurial risks into a textbook growth model with infinitely-lived agents. In the model, entrepreneurs face no credit constraints. If the degree of entrepreneurial risks is in the middle range, bubbles are likely to emerge. If the degree is high, bubbles promote growth because of the wealth effect. Otherwise, bubbles lower growth. The effect of the collapse of bubbles also depends on the degree of the risks. Moreover, asset bubbles amplify a small and temporal negative technology shock.

Revealing dynamic intrinsic temporal and spatial scale characteristics of oil price volatility in bubble and non-bubble periods

This paper is to reveal the dynamic characteristics of crude oil price bubble volatility from intrinsic temporal and spatial scales. For this purpose, volatility series is mapped to the dynamic model described by the Langevin equation viewed from mathematical differentiation. And the Backward Sup Augmented Dickey-Fuller is used to divide the bubble and non-bubble period. In the intrinsic temporal scale, volatility always has no long-term memory and is more volatile in the bubble period. The intrinsic time of crude oil price fluctuations varies proportionally with trading time. In the spatial scale, the range of price fluctuations during bubbles is smaller.

Bubbles and Stagnation

Abstract This paper studies the consequences of asset bubbles for economies that are vulnerable to persistent stagnation. Stagnation is the result of a shortage of assets that creates an oversupply of savings and puts downward pressure on the level of interest rates. Once the zero lower bound on the nominal interest rate binds, the real rate cannot adjust further downward, forcing output to fall instead. In such context, bubbles are useful as they expand the supply of assets, absorb excess savings, and raise the natural interest rate—the real rate that is compatible with full employment—crowding in consumption and raising welfare. However, a risky bubble that can collapse with positive probability is smaller and less effective in doing so than a safe bubble. In this case, fiscal policy in the form of promised bailout transfers in case of a bubble collapse, can support an existing bubble and improve its size.

Unraveling the Global Financial Crisis

The primary focus of this paper is on the causes of the financial crisis of 2008 and how it affected the world economy. The three main causes of the financial crisis are the Fed's monetary policy, subprime mortgage and credit default swaps. Irrational lending methods, the bubble economy in the housing market and unregulated insurance schemes became the inducement of the global financial crisis, which began with the bankruptcy of Lehman Brothers, the merger and acquisition of JPMorgan Chase and more and more people losing their jobs. This is not only an explosion in the American market, but also in the Asian and European markets are facing a depression. Therefore, the US government learned from the experience after 2008 and issued two corresponding important laws to prevent such incidents from happening again. The two proposals are the Dodd-Frank Act and Basel III. Therefore, this paper will introduce the two plans in detail and analyze their impact on the American economy.

Perceptions of social media users to government regulations and measures during COVID-19 pandemic in Jordan: a qualitative study

ABSTRACT During the COVID-19 pandemic, social media played an important role in disseminating information and procedures for dealing with this pandemic, however, there is a lack of studies investigating the perceptions of social media users concerning the regulations and measures issued by authorities to encounter and cope with the COVID-19 pandemic, which was exceptional at that time. Therefore, this study purposed to explore the perceptions of social media users about the regulations and instructions of the authorities’ measures in times of the COVID-19 pandemic in Jordan. A qualitative method including thematic analysis and content analysis was adopted to evaluate social media posts, which involved the text and images found in these posts during the period from March 2020 to June 2020. Three social media websites were included in the study, namely Facebook, Snapchat, and Twitter. Five themes were extracted from 317 posts, including COVID-19 is a bubble economy, COVID-19 is a political game, health-related information about COVID-19 and safety precautions, COVID-19 regulations influenced personal restrictions and freedom confiscation, and COVID-19 is a financial burden. Thus, this study may provide recommendations for policy-makers to develop campaigns and activities based on people’s perspectives and design the appropriate health and economic promotions and interventions.

Editorial announcement

I am delighted to welcome Sam Astill, James Duffy and Liudas Giraitis to the editorial board of the Journal of Time Series Analysis. All three join as Associate Editors with effect from 1 March 2023. At the same time, I would like to thank Professor Konstantinos Fokianos, who steps down as an Associate Editor with effect from 1 March 2023, for his work for the journal in this capacity since 2013. Sam Astill is a Senior Lecturer in Econometrics at Essex Business School. His research interests include theoretical and applied time series econometrics and financial econometrics, in particular asset price bubble detection and predictive regression. He has published his research in Journal of Financial Econometrics, Journal of Time Series Analysis, The Econometrics Journal, among others. James Duffy is an Associate Professor in Economics at the University of Oxford. His research is focused on strongly dependent time series, particularly with respect to: non-parametric estimation and inference; nonlinear generalizations of cointegration; and the robustness of inferences to varying levels of persistence. He is also interested in problems of identification and inference in structural macroeconomic models. His research has been published in the Annals of Statistics, the Journal of Econometrics, Econometric Theory, among others. Liudas Giraitis is Professor of Econometrics at Queen Mary, University of London. His research interests cover long memory and integrated I(d) models, non-parametric methods for time series models with time-varying parameters, ARCH modeling, asymptotic theory for dependent variables and their statistical and econometric applications. He has published his research in Annals of Statistics, Annals of Probability, Journal of Time Series Analysis, Econometric Theory, Journal of Econometrics, among others.

Investing in wine, precious metals and G-7 stock markets – A co-occurrence analysis for price bubbles

This paper used the GSADF test to determine the periods defined in this paper as price bubbles in the three markets studied, i.e. the investment wine market, precious metal market and national stock market indices of G-7 countries. The results obtained enabled the calculation of the values of the phi correlation coefficients, which served the research objective of assessing the co-occurrence of price bubbles in the markets analysed. The research period adopted in the study was December 2003 to March 2022, and the data were examined at a monthly frequency.Based on the results, it was concluded that the periods of price bubbles in the investment wine market, relative to the other investments studied, are long and amount to a maximum of 50% of the time studied. Price bubble periods for investments in the DAX index and the Rhone 100 index or the Rest of the World 60 index will lower the risk of an investment portfolio in times of greatest turbulence in these markets. In addition, the co-occurrence of price bubbles was not confirmed for the S&P500 index and the Bordeaux Legends 40 investment. Moreover, no co-occurrence of price bubbles was identified between investments in most of the wine indices studied and investments in silver and gold. However, the same phenomenon was not confirmed for platinum investments.

Bubbles, Crashes, and Economic Growth: Theory and Evidence

We analyze the ups and downs in economic growth in recent decades by constructing a model with recurrent bubbles, crashes, and endogenous growth. Once realized, bubbles crowd in investment and stimulate economic growth, but expectation about future bubbles crowds out investment and reduces economic growth. We identify bubbly episodes by estimating the model using the US data. Counterfactual simulations suggest that the IT and housing bubbles not only caused economic booms but also lifted US GDP by almost 2 percentage points permanently, but the economy could have grown even faster if people had believed that asset bubbles would never arise. (JEL E22, E23, E32, E44, G14, R31)

Noncausal affine processes with applications to derivative pricing

AbstractLinear factor models, where the factors are affine processes, play a key role in Finance, since they allow for quasi‐closed form expressions of the term structure of risks. We introduce the class of noncausal affine linear factor models by considering factors that are affine in reverse time. These models are especially relevant for pricing sequences of speculative bubbles. We show that they feature nonaffine dynamics in calendar time, while still providing (quasi) closed form term structures and derivative pricing formulas. The framework is illustrated with term structure of interest rates and European call option pricing examples.

Endogenous money supply, global liquidity and financial transactions: Panel evidence from OECD countries

Research background: Endogenous money creation is an inherent feature of today?s economies and widely accepted phenomenon. As the various theories of money rely on the money quantity equation, most empirical research is heading towards the analysis of the two-way relationship between the quantity of money and nominal GDP. In today's world, with the extraordinary development of the financial sector, money is used not only for transactions in the real economy, but increasingly also for purchasing financial assets. This observation was absorbed by Werner in the quantity theory of disaggregated credit. Purpose of the article: The aim of the paper is to join the debate on endogenous character of money supply by tasting a disaggregated equation of money. It assumes that the domestic money supply is positively determined not only by growth in GDP-based transactions but also by growth in non-GDP-based transactions (financial transactions). Additionally, it is assumed that in the age of globalization it can be also positively influenced by the global liquidity. Methods: Testing of the above-mentioned hypotheses takes place with the use of panel unit roots tests, panel Granger causality test and panel estimations (OLS, models with fixed/random effects, GMM). In the study, annual data from 2002 to 2018 for OECD countries were chosen for statistical research. Findings & value added: The article confirms the hypothesis that real and financial economic activity together with global liquidity positively influence domestic credit and thus money supply. As the amount of money in an economy is driven not only by the real economy but also by the financial economy, prudential regulations that restrict leverage (and thus control the amount of credit) and limit risk-taking during price bubbles periods should be therefore considered. In the research, the reaction of domestic money supply to the changes in US money supply is positive. It confirms the importance of spill-over effect of expansionary policy in major economies to other economies.

Residential segregation by nationalities: A global and multilevel approach to Barcelona and Madrid (2008–2018)

AbstractThis paper analyzes patterns of residential segregation for many nationalities in Barcelona and Madrid during the 2008–2018 period. In the first year, the financial bubble burst, halting the exponential growth of immigrants and in the second, after the great recession, the arrival of immigrant population resumes. The multilevel analysis for the dissimilarity index is applied for the first time to Spanish cities. Complementing the results of global indices with the multilevel framework provides a richer and more detailed profile of segregation patterns. Based on these results, a typology of segregation patterns by nationalities was carried out. Global indices show higher segregation in Madrid than in Barcelona, and multilevel results evidence increasing and extending areas of high concentration of immigrants and mixing neighbourhoods. The cluster analysis demonstrates that, in this case, segregation patterns are not the same for continents or income levels of countries of origin. The results provide nuanced empirical evidence of place stratification and ethnic enclave models.

Positive and negative price bubbles of Chinese agricultural commodity futures

This study examines the predictability of positive and negative price bubbles of the Chinese agricultural commodity futures with the log-periodic power law singularity (LPPLS) confidence multi-scale indicators application. To measure the bubble risks of these commodity futures, the duration, the frequency and the magnitude of the price bubble are adopted as the evaluation indicators. The results found that the Chinese agricultural commodity futures with higher bubble risks are soybean, soybean oil, soybean meal, white sugar, cotton and corn futures. Furthermore, the price bubbles of Chinese agricultural commodity futures are affected by the investor sentiment and the overall degree of macroeconomic factors. Economic growth, money supply, and inflation have positive effects on the occurrences of the positive bubbles, while currency appreciation and interest rate have negative effects and vice versa on the occurrences of the negative bubbles. Financialization has positive effects on both occurrences of the positive and negative bubbles. Overall, this study provides new insights for the policy makers and market participants to monitor the occurrence of price bubbles.

Stock Price Bubble, Debt Maturity Structur, Institusional Ownership dan Stock Price Crash Risk di Perusahaan Teknologi Indonesia

This study aims to impirically determine the influence of the stock price bubble, long-term debt and institutional ownership on the stock price crash risk in Indonesian technology companies in 2019-2021. The sampling technique in this study was using the proposive sampling method and obtained samples of 16 companies with a total observation of 48. The data analysis used in this study used the panel data regression method using the eviews 10 analysis tool. The results of this study show that long-term debt has a significant effect on stock price crash risk, meaning that companies that have a larger long-term debt structure in their capital structure have a higher stock price crash risk. Meanwhile, the stock price bubble and institutional ownership do not have a significant effect on the stock price crash risk. Simultaneously or together the stock price bubble, long-term debt and institutional ownership have a significant effect on stock price crash risk. Based on the results of the coefficient determination test, an adjusted R-square value of 0.8497 was obtained, meaning that the contribution of the independent variable in explaining the dependent stock price crash risk variable was 84.97%. This research is expected to be used as a consideration for interested parties, especially company managers and investors, to be able to pay attention to the factors that will cause stock price crash risk in Indonesian technology companies.

Detecting the Herding Behaviour in the South African Stock Market and its Implications

Herd mentality is associated with financial market bubbles and crises and is not a new concept. Despite the dotcom bubble in the late 90’s and the recent real estate bubble, investors still have the tendency to see irrational decision as rational. Thus the aim of this study was to investigate the presence of herding in the Johannesburg stock exchange during the Covid-19 pandemic. Studies conducted in other markets have detected the presence of herding which sends strong signal of issues that may arise in financial markets. Using a sample period from 02 January 2020 to 31 December 2021 and a cross sectional absolute deviation as an analysis tool, the findings reveals a significant presence of herding in the Johannesburg stock exchange. The main implications to this finding is that momentum investing strategies is more suitable for the Johannesburg Stock exchange and exploring past price movements may provide valuable insights on expected future price movements

Are the Liquidity and Collateral Roles of Asset Bubbles Different?

AbstractSeveral papers explain why asset bubbles are observed when growth is large. These papers differ in the role of the bubble, used to provide liquidities or as collateral in a borrowing constraint. We compare the liquidity and collateral roles of bubbles in an overlapping generations model. When the bubble is deterministic, the equilibrium is identical under these two roles, implying that the same mechanism explains the crowding‐in effect of the bubble on growth. With stochastic bubbles, growth is larger when bubbles play the liquidity role, because the burst of a bubble used for liquidity is less damaging to capital investors.

Thermodynamic Interpretation of the Progression of Historical Processes

This article examines the long-term rise of human civilization in terms of the emergence of socio-physical dissipative structures, including cities, agricultural systems, infrastructure and relevant economic enterprises. The laws of thermodynamics, the Principle of Least Time, and the phenomena of complexity and emergence are briefly reviewed and accepted as assumptions. The concepts of thermodynamic work, power and efficiency are likewise reviewed. Also examined are the emergence of medium-term dissipative structures, such as the rise and fall of dynasties, resource and economic bubbles in terms of thermodynamic theory. The impact of thermodynamic constraints on the emergence and fall of such structures is examined. Particular attention is paid to the interactions between physical resource use and the social progression of those structures. Areas of applicability to World-Systems is discussed.