This book sheds new light on the role of speculative bubbles in the stock market and argues that, provided they are sustainable, bubbles may in fact have a positive effect on the market.In many developed countries, speculative bubbles in stock markets seem to have emerged as a persistent phenomenon. This book offers new perspectives on the role bubbles play in recent economic development. The author refutes the traditional argument that speculative bubbles necessarily increase instability or develop at the expense of real activities. He argues that, when profitable investment projects are scarce, bubbles on the stock market may provide additional investment opportunities with the potential to increase aggregate profits and to improve economic welfare. However, he allows that this potentially positive effect can only occur if bubbles are sustainable and do not burst. Highly sophisticated financial systems are needed in order to allow for positive effects to develop or, as recent experience in Asia has shown, the destabilizing effects will outweigh the potential benefits.The book takes a groundbreaking view on speculative bubbles and will be invaluable to academics and practitioners with an interest in financial economics.
