In practice, we often see overshoots, bubbles, and crashes which are then blamed on irrationality. This paper suggests that investors are often transacting in a price-insensitive fashion because of the financial situation in which they find themselves. The paper reviews some examples of past bubbles and crashes, and attempts to draw some common threads. The issue of leverage is addressed in some detail, both at the private and institutional levels, and ways of measuring, monitoring and controlling it are reviewed. Derivatives are discussed in more detail as being a particularly powerful form of leverage.
Criticisms emerge of a number of conventional wisdoms.
Alan Brace Simulating in BGM One can simulate in BGM under several measures, Spot, Intermediate and Terminal. We compare and contrast the merits of each. Geoffrey Brianton Earnings revisions in the US market Changes in consensus earnings have being recognised as having a strong relationship with future excess returns. Laurence Irlicht Modelling Relationships which exhibit Structural Change. Many relationships in finance are not static.