Empirical study on the effect of asset price bubbles on investment

This paper make a comparison of the elasticity coefficient of fixed assets investment to the U.S. stock market index (house price index) in the period in which they have bubbles and don't have bubbles, to study the effect of asset price bubbles on investment demand. Our empirical results show that: (i) compared to the non-bubble period, the elasticity coefficient of investment to stock price (house price) changes from -0.088 (0.402) to 0.094 (0.945) in the bubble period, which indicates there are significant positive effect of stock price and house price on investment when they are both in bubbles; (ii) the elasticity of investment to house price is much larger than that of stock price when they are both in bubbles, which indicates that asset price bubbles, especially the real estate price bubble can significantly stimulate investment demand.