Rational speculative bubbles are a factor that has often led to the collapse of the economy. In this study, the size of rational speculative bubble from the first cycle to the fifth cycle are identified by using a generalised Johansen-Ledoit-Sornette Model. This study also discussed the effects of the burst of the rational speculative bubble also known as the financial bubble. Then, the economic performance of the countries that pioneered the world economy will be analysed along with the stock prices, the performance of Gross Domestic Product (GDP) and the timeline of the global pandemic. Lastly, this paper discussed the effects of the existence of financial bubble and the presence of pandemics towards the sustainability of the living standards for the B40 and M40 household groups in Malaysia.

Rational speculative bubble is a situation where the price of an asset exceeds its fundamental value. The burst of the rational speculative bubble may cause a negative impact towards the economy. If the bubble burst in the country which act as the world’s main economy, it will cause a big impact, and this will also affect the developing countries. Currently, there are no specific way to prevent this bubble from occurring but if the existence is known, several measures can be taken, so that, the impact can be minimized. This study aims to shows the size of the rational speculative bubble in the world’s main economy in four cycle. Also, the prediction on the size and the time of the bubbles burst of the fifth cycle will be discuss.

This paperdiscusses about the relationship between Gross Domestic Product with the size of speculative rational bubbles in stock market. The stock market chosen in this study are Hang Seng, Nikkei 225 and S&P 500. This is because China, Japan and United States are countries that pioneers the world economy. This paper presents analysis that have been done in order to view the relationship between GDP and thesize of speculative rational bubbles in stock market.