Price Bubble

Since the housing sector has an intricate relationship with other sectors of the economy, fluctuations in the price can be costly. Also, rising prices are either rooted in the underlying conditions of the economy or simply caused by the bubble, leading to different policies. Therefore, house price bubble can be considered as an early warning system to prevent adverse economic consequences. The present paper applies the theory of rational expectation bubble in the Iranian housing market during the years 2006-2020 using the Blanchard and Watson model. The theory implies that negative returns on house prices are less likely to occur if the bubbles exist. The risk assessment is, however, estimated by linear logistic function. The existence of bubble in housing market is confirmed based on 30 provinces.

The existence of bubbles in the market, especially the capital market, can be a factor in preventing the participation of investors in the capital market process and the correct allocation of financial resources for the economic development of the country. On the other hand, due to the goal of investors in achieving a portfolio of high returns with the least amount of risk, the need to pay attention to these markets increases. In this research, with the aim of maximizing return and minimizing investment risk, an attempt has been made to form an optimal portfolio in conditions where the capital market has a price bubble. According to the purpose, the research is of applied type, and in terms of data, quantitative and post-event, and in terms of type of analysis, it is of descriptive-correlation type. In order to identify the months with bubbles in the period from 2015 to 2021 in the Tehran Stock Exchange market, sequence tests and skewness and kurtosis tests were used. After identifying periods with bubbles, the meta-heuristic algorithms were used to optimize the portfolio. The results indicate the identification of 14 periods with price bubbles in the period under study. Also, in portfolio optimization, selected stock portfolios with maximum returns and minimum risk are formed. This research will be a guide for investors in identifying bubble courses and how to form an optimal portfolio in these conditions.