Bubbles And Crashes

“An interesting take on some factors that facilitate the development and bursting of bubbles in technology industries. . . . Highly recommended.” —Choice Financial market bubbles are recurring, often painful, reminders of the costs and benefits of capitalism. While many books have studied financial manias and crises, most fail to compare times of turmoil with times of stability. In Bubbles and Crashes, Brent Goldfarb and David A. Kirsch give us new insights into the causes of speculative booms and busts. They identify a class of assets—major technological innovations—that can, but does not necessarily, produce bubbles. This methodological twist is essential: Only by comparing similar events that sometimes lead to booms and busts can we ascertain the root causes of bubbles. Using a sample of eighty-eight technologies spanning 150 years, Goldfarb and Kirsch find that four factors play a key role in these episodes: the degree of uncertainty surrounding a particular innovation; the attentive presence of novice investors; the opportunity to directly invest in companies that specialize in the technology; and whether or not a technology is a good protagonist in a narrative. Goldfarb and Kirsch consider the implications of their analysis for technology bubbles that may be in the works today, offer tools for investors to identify whether a bubble is happening, and propose policy measures that may mitigate the risks associated with future speculative episodes.

Economists broadly define financial asset price bubbles as episodes in which prices rise with notable rapidity and depart from historically established asset valuation multiples and relationships. Financial economists have for decades attempted to study and interpret bubbles through the prisms of rational expectations, efficient markets, equilibrium, arbitrage, and capital asset pricing models, but they have not made much if any progress toward a consistent and reliable theory that explains how and why bubbles (and crashes) evolve and are defined, measured, and compared. This book develops a new and different approach that is based on the central notion that bubbles and crashes reflect urgent short-side rationing, which means that, as such extreme conditions unfold, considerations of quantities owned or not owned begin to displace considerations of price.

Why do stock and housing markets sometimes experience amazing booms followed by massive busts and why is this happening more and more frequently? Boom and Bust reveals why bubbles happen, and why some bubbles have catastrophic economic, social and political consequences, whilst others have actually benefited society.

From Catastrophe to Chaos: A General Theory of Economic Discontinuities presents and unusual perspective on economics and economic analysis. Current economic theory largely depends upon assuming that the world is fundamentally continuous. However, an increasing amount of economic research has been done using approaches that allow for discontinuities such as catastrophe theory, chaos theory, synergetics, and fractal geometry. The spread of such approaches across a variety of disciplines of thought has constituted a virtual intellectual revolution in recent years. This book reviews the applications of these approaches in various subdisciplines of economics and draws upon past economic thinkers to develop an integrated view of economics as a whole from the perspective of inherent discontinuity.

A financial journalist presents an analysis of the stock market and economics of the 1990s, examining the causes of the crisis and discussing the collapse of Enron, the dot-com bubble, and the accounting scandal and Andersen.

The role of information is central to the academic debate on finance. This book provides a detailed, current survey of theoretical research into the effect on stock prices of the distribution of information, comparing and contrasting major models. It examines theoretical models that explain bubbles, technical analysis, and herding behavior. It also provides rational explanations for stock market crashes. Analyzing the implications of asymmetries in information is crucial in this area. This book provides a useful survey for graduate students.

"Most of the matter in this book has appeared in the Saturday Evening Post during the last twelve months."--Author's note. June 1, 1932.

Historical treatment of significant financial crises.