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The origin of stock-market crashes: proposal for a mimetic model using behavioral assumptions and an analysis of legal mimicry

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  • Aldo Levy

    ()
    (GREG-CRC - CNAM)

  • Larry Bensimhon

    ()
    (GREG - CRC - Groupe de recherche en économie et en gestion – Centre de recherche en comptabilité - Conservatoire National des Arts et Métiers (CNAM))

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    Abstract

    A number of phenomena are responsible for market crashes, but an analysis of investor behavior will tell us more than the valuation of securities on their fundamentals. In this regard, the interpretation of information seems to play a central role in these exceptional events. One specific type of mimetic behavior, called informational mimicry , sheds light on the kind of sudden, precipitous price plunges seen in 1929, 1987, and 2000. The current financial crisis certainly exhibits these mechanisms, but one of its novelties is related to a new form of herd behavior arising from the international legislative alignment of financial accounting data. In fact, the new IAS-IFRS standards have produced certain pernicious, globalized effects that may be described as "legal mimicry". Among the items most commonly blamed for this "Panurgic" behavior, Fair Market Valuation and the valuation of financial instruments appear to have been the major mechanisms involved in spreading the crisis. Indeed, they lent support to one of the causes of the current crash, via securitization.

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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number halshs-00593986.

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    Date of creation: 01 Nov 2010
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    Publication status: Published, International Journal of Business, 2010, 15, 3, 289-306
    Handle: RePEc:hal:journl:halshs-00593986

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    Keywords: Stock-market crises; behavioral finance; informational and legal mimicry; IAS-IFRS standards.;

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    1. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers, University of California at Berkeley, Economics Department _124, University of California at Berkeley, Economics Department.
    2. De Vany, Arthur & Walls, W David, 1996. "Bose-Einstein Dynamics and Adaptive Contracting in the Motion Picture Industry," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(439), pages 1493-1514, November.
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