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Bubbles and Busts: The 1990s in the Mirror of the 1920s

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  • Eugene N. White

Abstract

This paper surveys the twentieth century booms and crashes in the American stock market, focusing on a comparison of the two most similar events in the 1920s and 1990s. In both booms, claims were made that they were the consequence a %u201Cnew economy%u201D or %u201Cirrational exuberance.%u201D Neither boom can be readily explained by fundamentals, represented by expected dividend growth or changes in the equity premium. The difficulty of identifying the fundamentals implies that central banks would not be successful in preventing pre-emptive policies, although they still would have a critical role to play in preventing crashes from disrupting the payments system or sparking an intermediation crisis.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12138.

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Date of creation: Apr 2006
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Publication status: published as White, Eugene. “Bubbles and Busts: The great bull markets of the 1920s and 1930s,” Financial History 89 (Fall 2007): 12-15, 27.
Handle: RePEc:nbr:nberwo:12138

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  1. Kleidon, Allan W, 1986. "Variance Bounds Tests and Stock Price Valuation Models," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 953-1001, October.
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Cited by:
  1. Ryan R. Brady & Derek Stimel, 2011. "How the Housing and Financial Wealth Effects have changed over Time," Departmental Working Papers 31, United States Naval Academy Department of Economics.
  2. Lansing, Kevin J., 2012. "Speculative growth, overreaction, and the welfare cost of technology-driven bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 461-483.
  3. Michael Brocker & Christopher Hanes, 2013. "The 1920s American Real Estate Boom and the Downturn of the Great Depression: Evidence from City Cross Sections," NBER Working Papers 18852, National Bureau of Economic Research, Inc.
  4. Siklos, Pierre L., 2008. "The Fed's reaction to the stock market during the great depression: Fact or artefact?," Explorations in Economic History, Elsevier, vol. 45(2), pages 164-184, April.
  5. Kevin J. Lansing, 2008. "Speculative bubbles and overreaction to technological innovation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun20.
  6. Kevin J. Lansing, 2008. "Speculative growth and overreaction to technology shocks," Working Paper Series 2008-08, Federal Reserve Bank of San Francisco.

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