Shakeouts and Market Crashes

Alessandro Barbarino () and Boyan Jovanovic ()

No 10556, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G0 L0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-06
Note: AP EFG
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Related works:
Journal Article: SHAKEOUTS AND MARKET CRASHES (2007)
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