Asset price bubble: Difference between revisions
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==The nature of bubbles== | ==The nature of asset price bubbles== | ||
<ref>Solomon Asch: ''Effects of Group Pressure upon the Modification and Distortion of Judgments'' in H Guetzkow (ed) "Groups,Leadership and Men", Carnegie Press, 1951 | A steep and sustained price rise and then its precipitous collapse, both unrelated to the asset's properties - that is the pattern of events which has characterised hundreds of episodes from the "South Sea Bubble" of the 17th century to the housing bubbles of the early 21st century. There is no objective way of assessing the truth of any of the various explanations that have been advanced for them. Their "''information cascade''" component has been observed in other contexts <ref>[http://www.info-cascades.info/ Sushil Bikhchandani, David Hirshleifer, and Ivo Welch ''Information Cascades and Rational Herding: An Annotated Bibliography and Resource Reference'']</ref>, and the "''herding''" behaviour that they exhibit has characterised the conduct of the subjects of many experimental studies of human behaviour<ref>Solomon Asch: ''Effects of Group Pressure upon the Modification and Distortion of Judgments'' in H Guetzkow (ed) "Groups,Leadership and Men", Carnegie Press, 1951</ref>. A surge in share prices has been termed "irrational exuberance"<ref>[http://www.federalreserve.gov/boardDocs/speeches/1996/19961205.htm Alan Greenspan: ''The Challenge of Central Banking in a Democratic Society'',(Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, December 5, 1996) Federal Reserve Board 1996]</ref> | ||
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==History== | ==History== | ||
Revision as of 10:15, 1 December 2009
The nature of asset price bubbles
A steep and sustained price rise and then its precipitous collapse, both unrelated to the asset's properties - that is the pattern of events which has characterised hundreds of episodes from the "South Sea Bubble" of the 17th century to the housing bubbles of the early 21st century. There is no objective way of assessing the truth of any of the various explanations that have been advanced for them. Their "information cascade" component has been observed in other contexts [1], and the "herding" behaviour that they exhibit has characterised the conduct of the subjects of many experimental studies of human behaviour[2]. A surge in share prices has been termed "irrational exuberance"[3]
History
Consequences
Leading indicators
Notes and References
- ↑ Sushil Bikhchandani, David Hirshleifer, and Ivo Welch Information Cascades and Rational Herding: An Annotated Bibliography and Resource Reference
- ↑ Solomon Asch: Effects of Group Pressure upon the Modification and Distortion of Judgments in H Guetzkow (ed) "Groups,Leadership and Men", Carnegie Press, 1951
- ↑ Alan Greenspan: The Challenge of Central Banking in a Democratic Society,(Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, December 5, 1996) Federal Reserve Board 1996