Shakeouts and Market Crashes

Preprint
Publisher Website
Google Scholar
  • 1 January 2004
    • preprint
      • Published in RePEc
Abstract
Stock-market crashes tend to follow run-ups in prices. These episodes look like bubbles that gradually inflate and then suddenly burst. We show that such bubbles can form in a Zeira-Rob type of model in which demand size is uncertain. Two conditions are sufficient for this to happen: A declining hazard rate in the prior distribution over market size and a positively sloped supply of capital to the industry. For the period 1971-2001 we fit the model to the Telecom sector.
All Related Versions

This publication has 0 references indexed in Scilit: