Informational overshooting, booms and crashes
This paper offers an informational explanation to stock markets' booms and crashes. This explanation builds on the idea of 'informational overshooting': if market fundamentals change for an unknown period of time, prices experience a boom, which ends in a crash, due to informational dynamics. The paper then shows that 'informational overshooting' occurs when the market expands to a new capacity, which is unknown until it is reached. The paper presents two examples for such expansions, one due to increased productivity and one due to entry of new investors to the stock market. One implication is that financial liberalizations tend to be followed by booms and crashes.
Volume (Year): (2000)
Issue (Month): Apr ()
|Contact details of provider:|| Postal: |
Phone: (415) 974-2000
Fax: (415) 974-3333
Web page: http://www.frbsf.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
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.:
- Andrew Caplin & John Leahy, 1993. "Sectoral Shocks, Learning, and Aggregate Fluctuations," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 777-794.
- Rafael Rob, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 655-675.
- Romer, David, 1993.
"Rational Asset-Price Movements without News,"
American Economic Review,
American Economic Association, vol. 83(5), pages 1112-30, December.
- De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990.
"Noise Trader Risk in Financial Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 703-38, August.
- De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
- 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 _124, University of California at Berkeley, Economics Department.
- Gennotte, Gerard & Leland, Hayne, 1990.
"Market Liquidity, Hedging, and Crashes,"
American Economic Review,
American Economic Association, vol. 80(5), pages 999-1021, December.
- Gerard Gennotte and Hayne Leland., 1989. "Market Liquidity, Hedging and Crashes," Research Program in Finance Working Papers RPF-192, University of California at Berkeley.
- Gerard Gennotte and Hayne Leland., 1989. "Market Liquidity, Hedging and Crashes," Research Program in Finance Working Papers RPF-184, University of California at Berkeley.
- Blanchard, Olivier Jean, 1979. "Speculative bubbles, crashes and rational expectations," Economics Letters, Elsevier, vol. 3(4), pages 387-389.
- White, Eugene N, 1990. "The Stock Market Boom and Crash of 1929 Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 67-83, Spring.
- Benjamin M. Friedman & David I. Laibson, 1989. "Economic Implications of Extraordinary Movements in Stock Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(2), pages 137-190.
- Barsky, Robert B. & Long, J. Bradford De, 1990.
"Bull and Bear Markets in the Twentieth Century,"
The Journal of Economic History,
Cambridge University Press, vol. 50(02), pages 265-281, June.
- Mayer, Colin, 1987.
"New Issues in Corporate Finance,"
CEPR Discussion Papers
181, C.E.P.R. Discussion Papers.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
- Zeira, Joseph, 1987. "Investment as a Process of Search," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 204-10, February.
- Garber, Peter M, 1990. "Famous First Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 35-54, Spring.
- Mayshar, Joram, 1979. "Transaction Costs in a Model of Capital Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 673-700, August.
When requesting a correction, please mention this item's handle: RePEc:fip:fedfpr:y:2000:i:apr:x:1. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Noah Pollaczek)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.