Informational overshooting, booms, and crashes
AbstractThis paper offers an informational explanation for asset price booms and crashes. If market fundamentals change, but the length of this process of change is unknown, market participants try to learn about it by observing market outcomes. This learning generates a boom and a crash, which we call `informational overshooting'. The paper applies this idea to real-estate markets, to exchange markets and to stock markets. It shows that entry of a new group of investors to a stock market can generate such a boom and a crash. One implication of this result is that financial liberalizations tend to be followed by stock market booms and crashes.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 43 (1999)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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