I propose an arbitrage-based theory of bubbles in economies with general portfolio constraints and differences in beliefs. I find that, in general, bubbles cannot exist unless the constraints restrict the demand for credit sufficiently to induce low interest rates. Speculation due to...

Empirical tests for bubbles typically focus on the stationarity properties of the dividend yield. Evidence of nonstationarity in the dividend yield is viewed as proof of bubbles, while stationarity is interpreted as absence of bubbles. For economies with arbitrary pricing kernels but stationary...

Rational bubbles in stocks can cause increases in trading volume, even after accounting for their expansionary effect on output and consumption. Trading volume increases are not caused by speculation driven by differences in beliefs. Dividend-bearing assets used to transfer resources...

We show that an intrinsic property of a large class of rational bubbles is their capacity to relax the agents' debt limits. Any bubble that preserves the set of pricing kernels, or equivalently, the asset span, has effectively an identical effect on consumption and real interest rates as an...