Beyond Mechanical Markets: Asset Price Swings, Risk, and the Role of the State

By Roman Frydman; Michael D. Goldberg | Go to book overview

7
Keynes and Fundamentals

THE RUN-UPS IN housing, equity, and other asset markets and the subsequent sharp reversals that were among the proximate causes of the financial crisis that began in 2007 solidified the belief that asset-price swings are largely unrelated to fundamental considerations. Instead, price bubbles supposedly form and collapse as a result of the trading decisions of market participants who are irrational, prone to emotions and other psychological factors, or engage in momentum trading.

Many observers point to the long upswing in U.S. equity prices during the 1990s as a prime example of such behavior and widely refer to this upswing as the “dot.com or internet bubble.” During this period, there was indeed much confidence, optimism, and even a sense of euphoria about internet stocks, with initial public offerings for many companies witnessing remarkable price increases. Globe.com and eToys, just to name two, saw price rises on the first day of trading of 606% and 280%, respectively. During October 1999, the six largest technology-related companies— Microsoft, Intel, IBM, Cisco, Lucent, and Dell—had a combined market value of $1.65 trillion, or nearly 20% of U.S. gross domestic product. At its height in August 2000, the broader S&P 500 price index had climbed to roughly 43 times its underlying earnings (Figure 7.1).1 This number eclipsed the market’s valuation in Octo

1The use of a 10-year trailing moving average to construct the priceearnings ratio in the figure addresses the problems that the current level of re

-117-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Beyond Mechanical Markets: Asset Price Swings, Risk, and the Role of the State
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen
/ 285

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.