Topic Archive: Financial Markets

Financial bubbles exist

In the economy we observe stock price booms and busts. How do these cycles come about, could there be a way of smoothing them and, in that case, should we? Klaus Adam, Johannes Beutel, and Albert Marcet show that a very simple model of stock prices can explain very well the stock price volatility found in the data assuming that investors do not understand perfectly well how prices are formed.

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