TY  - JOUR
AU  - Froot,Kenneth A.
AU  - Obstfeld,Maurice
TI  - Intrinsic Bubbles:  The Case of Stock Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3091
PY  - 1992
Y2  - March 1992
UR  - http://www.nber.org/papers/w3091
L1  - http://www.nber.org/papers/w3091.pdf
N1  - Author contact info:
Kenneth A. Froot
Graduate School of Business
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6677
Fax: 617/496-7357
E-Mail: kfroot@hbs.edu

Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu
AB  - Several puzzling aspects of the behavior of United States stock prices can be explained by the presence of a specific type of rational bubble that depends exclusively on dividends. We call such bubbles "intrinsic" bubbles because they derive all of their variability from exogenous economic fundamentals, and none from extraneous factors. Unlike the most popular examples of rational bubbles, intrinsic bubbles provide an empirically plausible account of deviations from present-value pricing. Their explanatory potential comes partly from their ability to generate persistent deviations that appear relatively stable over long periods.
ER  -