Boom–bust cycles and asset market participation waves: Momentum, value, risk, and herding

Roberto Dieci, Noemi Schmitt () and Frank Westerhoff
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Roberto Dieci: University of Bologna (Rimini Campus)
Noemi Schmitt: Department of Economics, University of Bamberg
Frank Westerhoff: Department of Economics, University of Bamberg

Journal of Evolutionary Economics, 2025, vol. 35, issue 3, No 5, 513-551

Abstract: Abstract We develop an asset market participation model in which investors base their market entry decisions on the momentum, value and risk of the market. Despite our behavioral framework, the model’s fundamental steady state is characterized by standard present-value relations between expected future payouts and the model-implied risk-adjusted return. We derive conditions under which endogenous asset market participation waves and co-evolving boom–bust cycles emerge. Moreover, we show that the asset market may display spontaneous, sharp, and permanent downturns if investors react sensitively to risk, an outcome that goes hand in hand with low asset market participation rates and excess volatility.

Keywords: Boom–bust cycles; Asset market participation waves; Momentum; Value and risk; Herding behavior; Feedback loops (search for similar items in EconPapers)
JEL-codes: D84 G12 G41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00191-025-00905-w

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