Rational equilibrium asset-pricing bubbles in continuous trading models

We study rational equilibrium asset-pricing bubbles in an economic environm ent in which agents are allowed to trade continuously, including as special cases some models From financial economics. For positive net supply assets , we present new necessary and sufficient conditions For the absence of bub bles in complete and incomplete markets equilibria with several types of bo rrowing constraints. For zero net supply assets. including financial deriva tives with finite maturities, we show that bubbles can generally exist and have properties different from their discrete-time, infinite-horizon counte rparts. We introduce a probabilistic approach to studying bubbles, generali zing analogs of existing results in the discrete-time bubbles literature. J ournal of Economic Literature Classification Numbers: D50, G12, G13. (C) 20 00 Academic Press.