Bubbles and Market Crashes
نویسندگان
چکیده
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset prices away from their fundamental value. This growth makes the system increasingly susceptible to any exogenous shock, thus eventually precipitating a crash. We also present computer experiments which in their aggregate behavior confirm the predictions of the theory.
منابع مشابه
Speculative Bubbles and Crashes in Stock Markets: An Interacting-Agent Model of Speculative Activity
In this paper we present an interacting-agent model of speculative activity explaining bubbles and crashes in stock markets. We describe stock markets through an infinite-range Ising model to formulate the tendency of traders getting influenced by the investment attitude of other traders. Bubbles and crashes are understood and described qualitatively and quantitatively in terms of the classical...
متن کاملMarket Bubbles and Crashes
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes and effects. This review and essay evaluates some of the hypotheses offered to explain the market crashes that often follow asset price bubbles. Starting fr...
متن کاملShakeouts and Market Crashes
Stock-market crashes tend to follow run-ups in prices. These episodes look like bubbles that gradually inflate and then suddenly burst. We show that such bubbles can form in a Zeira-Rob type of model in which demand size is uncertain. Two conditions are sufficient for this to happen: A declining hazard rate in the prior distribution over market size and a positively sloped supply of capital to ...
متن کاملFitting the Log Periodic Power Law to financial crashes: a critical analysis∗
A number of papers claim that a Log Periodic Power Law (LPPL) fitted to financial market bubbles that precede large market falls or ‘crashes’, contain parameters that are confined within certain ranges. The mechanism that has been claimed as underlying the LPPL, is based on influence percolation and a martingale condition. This paper examines these claims and the robustness of the LPPL for capt...
متن کاملBubbles and Crashes: Escape Dynamics in Financial Markets
We develop a financial market model focused on fund managers who continuously adjust their exposure to risk in response to the payoff gradient. The base model has a stable equilibrium with classic properties. However, bubbles and crashes occur in extended models incorporating an endogenous market risk premium based on investors’ historical losses and constant gain learning. When losses have bee...
متن کامل