Journal of Applied Finance & Banking

Applied Model for Financial Bubbles

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• Abstract

  This paper develops a linear and tractable model of financial bubbles. It is a special simplification of a general theory of financial bubbles developed by [1]. I demonstrate the application of the linear model and study the root causes of financial bubbles. Moreover, I derive leading properties of bubbles. This model enables investors and regulators to react to market dynamics in a timely manner. In conclusion, the linear model is helpful for the empirical verification and detection of financial bubbles.