Speculative Bubbles: Conditions Of Creation And Explosion

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Paraschos Maniatis

Keywords

financial bubbles, “backward-forward” analysis, Blanchard, Muth-Taylor approach, Martingale Terms approach

Abstract

This study is an attempt to illustrate the compatibility of financial bubbles, even under conditions of market efficiency and rational anticipations. The classical models of rational anticipations fail to describe a unique course of the price evolution of a financial due to the multiplicity of solutions to which they arrive. The approach of the bubble as a martingale can offer principles of approaching the bubbles, the possibility of creation and their eventual explosion, even under conditions of strong market efficiency and rational anticipations.

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