| Title: | Shakeouts and Market Crashes |
| Authors: | Barbarino, Alessandro Jovanovic, Boyan |
| Issue Date: | 30-Sep-2003 |
| Series/Report no.: | S-MF-03-15 |
| 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 convex cost of investment. For the period 1971-2001 we fit the model to the Telecom sector. |
| URI: | http://hdl.handle.net/2451/27323 |
| Appears in Collections: | Macro Finance |
Files in This Item:
| File | Description | Size | Format | |
|---|---|---|---|---|
| S-MF-03-15.pdf | 555.23 kB | Adobe PDF | View/Open |
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