Robust Financial Bubbles

TL;DR

This paper introduces a framework for analyzing financial bubbles under model uncertainty, defining robust bubble and fundamental value concepts that extend traditional models to settings with multiple, possibly singular, probability measures.

Contribution

It develops the notions of robust bubble and fundamental value in a multi-measure setting, extending classical financial bubble theory to uncertain environments.

Findings

Robust bubble and fundamental value concepts are formally defined.

The paper investigates no dominance conditions under model uncertainty.

Concrete examples illustrate the theoretical results.

Abstract

We study the concept of financial bubble in a market model endowed with a set of probability measures, typically mutually singular to each other. In this setting we introduce the notions of robust bubble and robust fundamental value in a consistent way with the existing literature in the case a unique prior exists. The notion of no dominance is also investigated under the uncertainty framework. Finally, we provide concrete examples illustrating our results.