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Is there some consenus in the literature as to what features characterize a bubble investment as distinct from a productive investment?

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  • $\begingroup$ It seems to me, on every ocassion, Eugene Fama will voice loudly his disagreement with attempts of such characterization. So I'm afraid not. $\endgroup$ – Metta World Peace Mar 28 '15 at 21:10
  • $\begingroup$ very useful answer. $\endgroup$ – user37250 Mar 30 '15 at 9:07
  • $\begingroup$ I can't comment yet but I think it is worth noting that there are lots of experiments on bubbles that are really interesting. I recommend skimming the experimental take on this. $\endgroup$ – user12713 Apr 2 '17 at 1:14
  • $\begingroup$ There is nothing to stop an investment being both. For example the dot com bubble. Yes the internet was going to make all sorts of profitable companies - but the investors thought that it was going to happen faster and more profitably than it actually did. $\endgroup$ – Mick Apr 3 '17 at 16:53
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I think one thing you can think of is this:

Assuming such a thing is possible (Fama may cry never here), one might first define a productive investment as an investment in an asset that is undervalued by the market relative to its fundamental value.

The distinction then between this type of investment and a bubble investment is that bubble investments stray far above the fundamental value of an asset. Bubbles are usually made worse than they might have become otherwise whenever trend investors attempt to play bubbles for profit. And it is generally the realization of this fact (that bubbles have pushed securities beyond fundamental valuations)by market participants that crashes the bubble.

This paper on the topic is nice.

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