Consumption and bubbles

We show that an unbounded number of consumption dates is necessary to support an asset pricing bubble. We work in a continuous-time model where the number of trade dates is infinite but the number of consumption dates is flexible and can be chosen to be uniformly bounded, finite almost surely, or infinite. Market clearing, together with monotone preferences for consumption, limits the properties of bubbles and provides restrictions on wealth constraints. In the special case of a uniformly bounded number of consumption dates, assets in positive net supply cannot have asset pricing bubbles and wealth constraints cannot allow limited arbitrage.

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