Transient Fads and the Crash of '87
Using a fad model with Markov-switching heteroscedasticity in both the fundamental and fad components (UC-MS model), this paper examines the possibility that the 1987 stock market crash was an example of a short-lived fad. While we usually think of fads as speculative bubbles, what the UC-MS model seems to be picking up is unwarranted pessimism which the market exhibited with the OPEC oil shock and the '87 crash. Furthermore, the conditional variance implied by the UC-MS model captures most of the dynamics in the GARCH specification of stock return volatility. Yet unlike the GARCH measure of volatility, the UC-MS measure of volatility is consistent with volatility reverting to its normal level very quickly after the crash. Copyright 1996 by John Wiley & Sons, Ltd.
Volume (Year): 11 (1996)
Issue (Month): 1 (Jan.-Feb.)
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/0883-7252/|
|Order Information:|| Web: http://www3.interscience.wiley.com/jcatalog/subscribe.jsp?issn=0883-7252 Email: |
When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:11:y:1996:i:1:p:41-58. 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: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.