arXiv:2607.03933v2

Rational Bubbles at the Spectral Edge: An Operator-Spectral Theory of Fragility, Identification and Finite-Sample Certification

Avishek Bhandari

econ.THecon.EM91B5091B5294A1737A3591A22

Abstract

When markets move more and more in lockstep, are they drifting towards the point where a price bubble becomes possible, and can that drift be measured before the crossing? This paper joins two long-separate ideas, that a rational bubble is a price outgrowing its dividends and that a crisis threshold can be read off the strength of a market's single dominant factor, onto one object recovered from the data: a summary of how asset returns move together, paired with a discount rate. We call this crossing point the fragility edge and show it plays three roles at once. A stated discipline says what the data support: the edge firmly, with a margin of error; whether a bubble exists, only roughly; which asset carries it, not at all. Across eighteen global equity indices from 2004 to 2024, that dominant factor strengthens in every documented crisis, the market collapsing from about six to about four independent factors; once the discount is set so that calm markets sit at the edge, this strength crosses it in crisis. These readings coincide with crises, not forecasts.

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Audited against arXiv v2

Not a correctness certificate. A “Correct” result may include yellow typos or minor formal corrections that do not affect substantive soundness. It means this audit found no unresolved substantive error under the stated criteria; it does not replace expert scrutiny or formal verification.

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Detailed mathematical audit

Generated August 18, 2026
01Statements2 reported findingsContains wrong statements

Two central operator-theoretic assertions in Theorem 1 are false for bounded self-adjoint operators as stated: orthogonality to an eigenspace need not imply solvability at a non-isolated spectral value, and strong decay of all iterates need not require a strict spectral-radius inequality.

Theorem 1(i)Incorrect

The eigenprojection condition is not sufficient for solvability

Pages 8–9 · Theorem 1(i) and its proof · arXiv:2607.03933v2

Let H=2(N0)H=\ell^2(\mathbb N_0), β=1/2\beta=1/2, Be0=2e0Be_0=2e_0, and Ben=(21/n)enBe_n=(2-1/n)e_n for n1n\geq1. Put D0=0D_0=0 and Dn=1/nD_n=1/n. Then BB is bounded self-adjoint and the projection of DD onto the 22-eigenspace is zero. However, solving (IβB)P=βBD(I-\beta B)P=\beta BD coordinatewise forces Pn=21/nP_n=2-1/n, which is not in 2\ell^2. Thus the condition Π1/βD=0\Pi_{1/\beta}D=0 is not sufficient unless a closed-range or isolated-eigenvalue hypothesis is added.

Full paper, version 2
Theorem 1(iv)Incorrect

Strong decay can hold on the spectral-radius boundary

Pages 8–9 · Theorem 1(iv) and its proof · arXiv:2607.03933v2

Take H=L2([0,1])H=L^2([0,1]), let (Bf)(x)=2xf(x)(Bf)(x)=2x f(x), and set β=1/2\beta=1/2. Then r(B)=2r(B)=2, so βr(B)=1\beta r(B)=1, but (βB)kf=xkf0(\beta B)^k f=x^k f\to0 in L2L^2 for every ff by dominated convergence. The paper's norm estimate only shows that the operator norms do not tend to zero; it does not disprove strong convergence. The claimed equivalence therefore confuses norm and strong stability.

02Proofs2 reported findingsContains incorrect or incomplete proofs

The proofs of Theorem 1(i) and 1(iv) contain decisive functional-analytic errors. Other Neumann-series and finite-sample arguments do not repair these central failures.

Proof of Theorem 1(i)Incorrect

Self-adjointness does not make the relevant range closed

Page 9 · proof of Theorem 1(i) · arXiv:2607.03933v2

For a bounded self-adjoint operator, Ran(IβB)=ker(IβB)\overline{\operatorname{Ran}(I-\beta B)}=\ker(I-\beta B)^\perp, but the range itself can be nonclosed when 1/β1/\beta is a non-isolated spectral point. The proof silently drops the closure, exactly as the diagonal counterexample in the statements finding demonstrates.

Proof of Theorem 1(iv)Incorrect

Operator-norm nondecay is used as strong nondecay

Page 9 · proof of Theorem 1(iv) · arXiv:2607.03933v2

The spectral-radius computation controls (βB)k\lVert(\beta B)^k\rVert, whereas the theorem quantifies separately over each vector. Strong convergence may hold with all operator norms equal to one, so the displayed norm argument proves neither the necessary direction nor the stated equivalence.

03Novelty0 reported findingsNo non-novelty findings

No non-novelty findings.

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Paper
arXiv:2607.03933v2
Authors listed
Avishek Bhandari
Audit date
August 18, 2026
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