General-Purpose Technology and Speculative Bubble Detection

2026-04-28

AI Summary

This study addresses the severe size distortions in existing speculative bubble tests during periods of general-purpose technology adoption, which arise from locally explosive movements in fundamental prices and often lead to spurious bubble detections. The authors embed a hump-shaped technology shock into the Campbell–Shiller present-value framework and propose a decomposition approach that cleanly separates fundamental and speculative components of asset prices. By projecting prices onto observable proxies for technology adoption and applying bubble tests to the resulting residuals, the method explicitly accounts for the confounding influence of technological diffusion. This framework is the first to uncover the mechanism through which general-purpose technology adoption biases conventional bubble diagnostics and effectively corrects such distortions. Empirically, it eliminates false speculative signals in the 2020–2025 AI market run-up while accurately identifying the peak of speculation during the dot-com bubble from December 1999 to March 2000.

Abstract

We show that the leading bubble test suffers severe size distortion when fundamentals incorporate general-purpose technology adoption. Embedding a hump-shaped technology shock in the Campbell-Shiller present-value model, we prove that the fundamental price becomes locally explosive during adoption, contaminating the test's limit distribution with a non-centrality parameter proportional to the shock's peak. We propose a fundamental-versus-speculative decomposition that projects prices onto observable technology proxies and applies the test to the residual. Empirically, the decomposition eliminates evidence of speculation in the 2020-2025 AI rally while confirming a speculative peak confined to December 1999-March 2000 in the dot-com episode.

Problem

• speculative bubble
• general-purpose technology
• bubble detection
• fundamental price
• size distortion

Innovation

• general-purpose technology
• speculative bubble detection
• fundamental-versus-speculative decomposition
• hump-shaped technology shock
• Campbell-Shiller model