TY - JOUR
T1 - Informational overshooting, booms, and crashes
AU - Zeira, Joseph
PY - 1999/2/19
Y1 - 1999/2/19
N2 - 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 of such expansions, one due to increased productivity and the other due to entry of new investors to the stock market. One implication is that financial liberalizations tend to be followed by booms and crashes.
AB - 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 of such expansions, one due to increased productivity and the other due to entry of new investors to the stock market. One implication is that financial liberalizations tend to be followed by booms and crashes.
KW - Booms and crashes
KW - D83
KW - Financial liberalization
KW - G19
KW - Missing information
KW - Rational expectations
UR - http://www.scopus.com/inward/record.url?scp=0007886826&partnerID=8YFLogxK
U2 - 10.1016/S0304-3932(98)00042-7
DO - 10.1016/S0304-3932(98)00042-7
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AN - SCOPUS:0007886826
SN - 0304-3932
VL - 43
SP - 237
EP - 257
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 1
ER -