The Classification and Identification of Asset Price Bubbles

This article briefly summarizes approaches to and options for identifying bubbles in asset prices. Further, the article draws on bubble literature and it theoretically discusses classification of asset price bubbles according to features as differences in rationality of investors, their informationa...

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Bibliographic Details
Published in:Finance a úvěr 2011, Vol.61 (1), p.34-48
Main Authors: Komarek, Lubos, Kubicová, Ivana
Format: Article
Language:English
Subjects:
asset bubbles
asset prices
Banking industry
Classification
Consumption
Economic models
Economic policy
equilibrium value
Investments
Market prices
misalignment
Perceptions
Securities markets
Stock prices
Studies
Volatility
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Summary:This article briefly summarizes approaches to and options for identifying bubbles in asset prices. Further, the article draws on bubble literature and it theoretically discusses classification of asset price bubbles according to features as differences in rationality of investors, their informational (a)symmetry, limits in arbitrage and heterogeneous beliefs. It also highlights the identification problems related with determining the fundamental value of an asset. We argue that disequilibrium asset price is a necessary but not sufficient condition for finding a bubble in a given asset. The market and country specifics have to be borne in mind. The article also specifies the procedure for monitoring and early identification of asset price bubbles. We recommend using all available spectrum of tools in the most effective arrangement ranging from charting methods (trends, filters, price-to-income ratios) via one-equation fundamentals based models to complex and structurally rich models.
ISSN:0015-1920
2464-7683