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Mathematics 2017, 5(4), 64; doi:10.3390/math5040064

On the Inception of Financial Representative Bubbles

1,2,3,†,* , 1,2,†
and
1,2,†
1
Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
2
Decisions Lab, Department of Law and Economics, University Mediterranea of Reggio Calabria, Via dei Bianchi 2, 89127 Reggio Calabria, Italy
3
Invernizzi Center for Research on Innovation, Organization, Strategy and Entrepreneurship, Department of Management and Technology, Bocconi University, Via Sarfatti 25, 20136 Milano, Italy
These authors contributed equally to this work.
*
Author to whom correspondence should be addressed.
Received: 9 October 2017 / Revised: 9 November 2017 / Accepted: 14 November 2017 / Published: 17 November 2017
(This article belongs to the Special Issue Financial Mathematics)
View Full-Text   |   Download PDF [242 KB, uploaded 17 November 2017]

Abstract

In this work, we aim to formalize the inception of representative bubbles giving the condition under which they may arise. We will find that representative bubbles may start at any time, depending on the definition of a behavioral component. This result is at odds with the theory of classic rational bubbles, which are those models that rely on the fulfillment of the transversality condition by which a bubble in a financial asset can arise just at its first trade. This means that a classic rational bubble (differently from our model) cannot follow a cycle since if a bubble exists, it will burst by definition and never arise again. View Full-Text
Keywords: financial mathematics; financial bubbles; behavioral finance financial mathematics; financial bubbles; behavioral finance
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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MDPI and ACS Style

Ferrara, M.; Pansera, B.A.; Strati, F. On the Inception of Financial Representative Bubbles. Mathematics 2017, 5, 64.

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