TY  - JOUR
AU  - Weil,Philippe
TI  - On The Possibility of Price Decreasing Bubbles
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2821
PY  - 1989
Y2  - 1989
UR  - http://www.nber.org/papers/w2821
L1  - http://www.nber.org/papers/w2821.pdf
N1  - Author contact info:
Philippe Weil
Director, Universite Libre de Bruxelles
ECARES
50, Avenue Roosevelt CP 114
B-1050 Brussels  BELGIUM
Tel: 32-2-650-4220
Fax: 32-2-650-4475
E-Mail: philippe.weil@ulb.ac.be
AB  - It is often argued that a rational bubble, because it is positive, must increase the price of a stock. This argument is not valid in general: as soon as bubbles affect interest rates, the fundamental value of a stock depends on whether or not a bubble is present. The existence of a rational bubble then might, by raising equilibrium interest rates, depress the fundamental to such an extent that the sum of the positive bubble and decreased fundamental falls short of the fundamental, no-bubble price. Under conditions made precise below, there can therefore be price decreasing bubbles, and an asset can be "undervalued."
ER  -