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Speculative Booms and Crashes

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Abstract

Speculative booms and crashes have been observed throughout history. In the first century Pliny reported a boom in land prices in the vicinity of Rome, a ‘sudden advance’ in prices which he said was ‘much discussed’ at the time.1 There was a boom in the prices in, of all things, tulip bulbs in Holland in 1637, where prices rapidly ascended until one record-setting bulb sold for 5500 guilders or about £25 000 at today’s price of gold. This bizarre boom was followed the same year by a dramatic collapse, after which bulbs could not be sold at 10 per cent of their peak price. Then there was the Florida land price boom of the mid-1920s, when people seemed suddenly to conclude that available land in this vacation spot and mecca for retirees was suddenly running out; prices soared. They soon found out that land was not so scarce after all: prices dropped precipitously in 1926. Then of course there was the stock market boom of the 1920s, with prices rising almost five-fold between Summer 1921 and Fall 1929. Following this there was a crash: between 3 September 1929 and 8 July 1932 the Dow Jones Industrial Average lost 84.4 per cent of its real (inflation-corrected) value, and lost 12.8 per cent of its value in one day, 28 October 1929.

Keywords

  • Stock Market
  • Housing Price
  • Housing Market
  • Institutional Investor
  • Market Participant

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

This lecture was delivered in November 1989 and first published in booklet form by City University Business School, Dept of Banking and Finance.

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References

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© 1996 Forrest Capie and Geoffrey E. Wood

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Shiller, R. (1996). Speculative Booms and Crashes. In: Capie, F., Wood, G.E. (eds) Monetary Economics in the 1990s. Studies in Banking and International Finance. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-25204-6_4

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