Psychological Aspects of Market Crashes


This paper analyzes the sensitivity of market crashes to investors'psychology in a standard general equilibrium framwork. Contrary to the traditional view that market crashes are driven by large drops in aggregate endowments, we argue from a theoretical standpoint that individual anticipations of such drops are a necessary condition for crashes to occur, and that the magnitude or such crashes are poritively correlated with the level of individual anticipations of drops

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Research Papers in Economics

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Last time updated on 7/6/2012View original full text link

This paper was published in Research Papers in Economics.

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