SPECULATIVE BUBBLES AS AN ANOMALY OF THE MODERN CAPITAL MARKETS

Bartosz Szumny
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Bartosz Szumny: Nicolaus Copernicus University

Equilibrium. Quarterly Journal of Economics and Economic Policy, 2009, vol. 2, issue 1, 39-47

Abstract: Speculative bubbles are one of the main problems that modern economy is facing today. It is an important issue as there is a clear-cut relationship between bubbles and financial crises we have been hearing of virtually everyday. During the 17th century “tulip bubble” and the 20th century “internet bubble” in which the prices of IT companies’ shares surged and then collapsed, many investors have lost their fortunes. What is it exactly that causes so much panic and trouble on financial markets? The behavioral finance can play an important role in deciphering of such phenomena and consequently give us better knowledge of them. In the paper the author analyzed the significant behavioral aspects of a bubble, including: herd behavior, information cascade, overconfidence and optimism, representativeness heuristics and conservatism bias. All these aspects will facilitate the understanding of the structure of a bubble and suggest ways to mitigate their occurrences and collapses of financial markets.

Keywords: speculative bubbles; capital markets (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:pes:ierequ:v:2:y:2009:i:1:p:39-47

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