Business as Usual, Market Crashes, and Wisdom after the Fact
AbstractThe authors present a three-stage model of market dynamics. In the first stage, routine behavior tends to keep information of common interest trapped in private hands. In the second stage, private information reaches a threshold that triggers some agents to alter their behavior; these actions release information to the market. The final stage involves the market's response to this news as other participants react to the initial departure from routine behavior. The authors present an application to industry investment. They also outline applications to the international debt crisis, to bank runs, and to political upheavals. Copyright 1994 by American Economic Association.
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Bibliographic InfoPaper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1594.
Length: 23 pages
Date of creation: 1992
Date of revision:
information ; market ; economic models ; investments;
Other versions of this item:
- Caplin, Andrew & Leahy, John, 1994. "Business as Usual, Market Crashes, and Wisdom after the Fact," American Economic Review, American Economic Association, vol. 84(3), pages 548-65, June.
- Caplin, A. & Leahy, J., 1992. "Business as Usual, Market Crashes and Wisdom After the Fact," Discussion Papers 1992_18, Columbia University, Department of Economics.
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