J. Barkley Rosser, Jr., James Madison University, Harrisonburg, VA

Abstract: This paper reviews a variety of issues related to speculative bubbles, especially those involving nonlinear dynamics. Models of irrational bubbles, rational bubbles, and bubbles arising from heterogeneous agents with varying degrees of knowledge or rationality are examined. The latter are shown to be prone to nonlinear dynamics with catastrophic discontinuities, chaos, and other forms of complex phenomena. Empirical evidence regarding the existence of bubbles in various markets is reviewed, eventually examining strong evidence in closedend country mutual funds markets.

Keywords: speculation, bubbles, rationality, catastrophe, chaos