Title: Shakeouts and market crashes
Description: "Stock-market crashes tend to follow run-ups in prices.  These episodes look like bubbles that gradually inflate and then suddenly burst.  We show that such bubbles can form in a Zeira-Rob type of model in which demand size is uncertain.  Two conditions are sufficient for this to happen: A declining hazard rate in the prior distribution over market size and a positively sloped supply of capital to the industry.  For the period 1971-2001 we fit the model to the Telecom sector"--National Bureau of Economic Research web site.
Subjects: Financial crises, Mathematical models, Prices, Stocks