Working Paper（26-018E）New Assets, Limits to Arbitrage, and Bubbles in Dividend-Yielding Assets

The successive creation of new assets generates bubbles in dividend-yielding assets. Because assets that have not yet been created cannot be traded in advance, arbitrage between existing and future assets is limited. Consequently, the prices of newly created assets may deviate from their fundamental values, resulting in asset bubbles. However, if no new assets are created, or if future assets can be traded, arbitrage trading eliminates these bubbles.

Keywords: rational bubbles, technological and financial innovation, deregulation, balanced growth.

JEL classification numbers: E1, G1, G12, N2