Speculative Bubbles and Overreaction to Technological Innovation
Abstract"Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street," observed legendary speculator Jesse Livermore. History tells us that periods of major technological innovation are typically accompanied by speculative bubbles as economic agents overreact to genuine advancements in productivity. Excessive run-ups in asset prices can have important consequences for the economy as firms and investors respond to the price signals, resulting in capital misallocation. On the one hand, speculation can magnify the volatility of economic and financial variables, thus harming the welfare of those who are averse to uncertainty and fluctuations. But on the other hand, speculation can increase investment in risky ventures, thus yielding benefits to a society that suffers from an underinvestment problem.
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Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 26 (2009)
Issue (Month): ()
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Speculative Bubbles; Excess Volatility; New Era Enthusiasm; Technology;
Other versions of this item:
- Kevin J. Lansing, 2008. "Speculative bubbles and overreaction to technological innovation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun20.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ricardo Caballero & Emmanuel Farhi & Mohamad L. Hammour, 2004.
"Speculative Growth: Hints from the US Economy,"
NBER Working Papers
10518, National Bureau of Economic Research, Inc.
- Martin S. Feldstein, 2007. "Housing, Credit Markets and the Business Cycle," NBER Working Papers 13471, National Bureau of Economic Research, Inc.
- Eugene N. White, 2006.
"Bubbles and Busts: The 1990s in the Mirror of the 1920s,"
NBER Working Papers
12138, National Bureau of Economic Research, Inc.
- Eugene N. White, 2004. "Bubbles and Busts: The 1990s in the Mirror of the 1920s," FRU Working Papers 2004/09, University of Copenhagen. Department of Economics. Finance Research Unit.
- Kevin J. Lansing, 2007. "Asset price bubbles," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct26.
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