Posts Tagged ‘Burbuja


Paper: Burbujas y el hecho de ser credulo

Bubbles, gullibility, and other challenges for economics, psychology, sociology, and information sciences

Gullibility is the principal cause of bubbles. Investors and the general public get snared by a “beautiful illusion” and throw caution to the wind. Attempts to identify and control bubbles are complicated by the fact that the authorities who might naturally be expected to take action have often (especially in recent years) been among the most gullible, and were cheerleaders for the exuberant behavior. Hence what is needed is an objective measure of gullibility.

This paper argues that it should be possible to develop such a measure. Examples demonstrate, contrary to the efficient market dogma, that in some manias, even top business and technology leaders fall prey to collective hallucinations and become irrational in objective terms. During the Internet bubble, for example, large classes of them first became unable to comprehend compound interest, and then lost even the ability to do simple arithmetic, to the point of not being able to distinguish 2 from 10. This phenomenon, together with advances in analysis of social networks and related areas, points to possible ways to develop objective and quantitative tools for measuring gullibility and other aspects of human behavior implicated in bubbles. It cannot be expected to infallibly detect all destructive bubbles, and may trigger false alarms, but it ought to alert observers to periods where collective investment behavior is becoming irrational.

The proposed gullibility index might help in developing realistic economic models. It should also assist in illuminating and guiding decision–making.

Link al Paper


Paper: Analizando la burbuja inmobiliaria norteamericana

Reasonable People Did Disagree: Optimism and PessimismAbout the U.S. Housing Market Before the Crash

Understanding the evolution of real-time beliefs about house price appreciation is central to understanding the U.S. housing crisis. At the peak of the recent housing cycle, both borrowers and lenders appealed to optimistic house price forecasts to justify undertaking increasingly risky loans. Manymobservers have argued that these rosy forecasts ignored basic theoretical and empirical evidence that pointed to a massive overvaluation of housing and thus to an inevitable and severe price decline. We revisit the boom years and show that the economics profession provided little such countervailing evidence at the time. Many economists, skeptical that a bubble existed, attempted to justify the historic run-up in housing prices based on housing fundamentals. Other economists were more uncertain, pointing to some evidence of bubble-like behavior in certain regional housing markets. Even these more skeptical economists, however, refused to take a conclusive position on whether a bubble existed. The small number of economists who argued forcefully for a bubble often did so years before the housing market peak, and thus lost a fair amount of credibility, or they make arguments fundamentally at odds with the data even ex post. For example, some economists suggested that cities where new construction was limited by zoning regulations or geography were particularly “bubble-prone,” yet the data shows that the cities with the biggest gyrations in house prices were often those at the epicenter of the new construction boom. We conclude by arguing that economic theory provides little guidance as to what should be the “correct” level of asset prices —including housing prices. Thus, while optimistic forecasts held by many market participants in 2005 turned out to be inaccurate, they were not ex ante unreasonable.

Link al Paper

¿Si Explota una Burbuja, nacen n “burbujitas”?

The BBC reports physicists have just discovered that, under certain (liquid, ahem) conditions, bursting bubbles don’t just disappear. No, instead they create lots of smaller ‘daughter’ bubbles, which then go on to create even littler bubbles, until they get so small they rupture into tiny aerosol droplets, which are eventually absorbed into the atmosphere.

(Fuente: FT Alphaville)


Analisis Tecnico, un interesante review

CSS Analytics tiene un post (y promete un segundo) sobre las limitaciones del análisis técnico. Sirve leerlo aunque sea solo para confirmar creencias.

First, let me state a unique premise: without other market players believing in fundamental analysis, I believe that technical analysis would not work. Huh? Well the truth is, all major trends including both bull and bear markets are a function of the belief in some theory about fundamentals. Few individuals with serious wealth are willing to risk their own money on the basis of an interpretation of a chart pattern. Imagine telling a client that has given you $25 million to invest that you are going to be investing $5 million in China Telecom because “the chart looks good.” Or how about trying to tell that same person that you are going to increase your exposure to Citigroup in 2008 “because my indicators show that the stock has hit a bottom.” You better have a good reason to explain to this same person why you are risking their hard-earned money on a bunch of chart squiggles. For this reason, most of the money in the mutual fund and pension fund universe is invested using fundamental research and macro-economic theses about a specific stock, sector or commodity. Typical examples include statements such as: “the world is running out of oil”, or that “the internet is going to take over brick and mortar business.”
Not some, but nearly ALL major bubbles or parabolic moves are created by feedback loops that start with a few people believing in a given theory and end with the majority achieving a consensus that a theory is true.


Paper: Crecimiento Económico y Burbujas

Economic Growth with Bubbles


We develop a stylized model of economic growth with bubbles. In this model, financial frictions lead to equilibrium dispersion in the rates of return to investment. During bubbly episodes, unproductive investors demand bubbles while productive investors supply them. Because of this, bubbly episodes channel resources towards productive investment raising the growth rates of capital and output. The model also illustrates that the existence of bubbly episodes requires some investment to be dynamically inefficient: otherwise, there would be no demand for bubbles. This dynamic inefficiency, however, might be generated by an expansionary episode itself.

Link al Paper


Paper: Retornos y la Hipotesis de Mercados Adaptativos

Stock Return Predictability and the Adaptive Markets Hypothesis: Evidence from Century Long U.S. Data

We study return predictability of the Dow Jones Industrial Average indices from 1900 to 2009. We find strong evidence that time-varying return predictability is driven by changing market conditions, consistent with the implications of the adaptive markets hypothesis. During market crashes, no return predictability is observed, but an extreme degree of uncertainty is associated with return predictability. During fundamental economic or political crises, stock returns have been highly predictable with a moderate degree of uncertainty. During economic bubbles, return predictability and its uncertainty have been smaller than normal times.

Link al Paper


Anatomia de una Burbuja

Un analista del Société Générale cita a Charles Kindleberger, autor del clasico Manias, Panics, and Crashes: A History of Financial Crisis, al esbozar la anatomía de una burbuja.

Stage 1 sees “displacement”. Frequently, this comes about through the introduction of a new disruptive technology (e.g. canals, railways, or the internet) although Kindleberger says it doesn”t necessarily have to come from such an innovation. It can arise on the back of greater market liquidity through, for example, financial deregulation.
Stage 2 is the “boom.” A convincing narrative gains traction (e.g. Asian economies are “miracle” Tiger economies; the Internet will change the world; sub-prime mortgages help financial institutions diversify risk). Price movements which seem to confirm the narrative are stoked by credit creation.

Stage 3 is “euphoria.” In the words of Kindleberger, “there is nothing so disturbing to one’s well-being and judgement as to see a friend get rich.” This greed sucks people who wouldn’t normally involve themselves in such practice into the mania. More and more people seek to become rich without understanding the process involved. Rationality becomes stretched and increasingly fanciful notions excuse what would ordinarily be considered irrational behaviour.

Stage 4 sees the “crisis.” The insiders originally involved start to sell. Prices level off and begin to fall. Those who bought at the top find themselves pushed out first and their selling eventually cascades down through the remaining believers. Speculators realise prices can no longer rise and the rush to exit is on. To the extent that leverage was used to finance any purchases at irrationally overvalued prices, savage price declines put banks in trouble too.

Stage 5 sees “revulsion” where prices likely overshoot fundamental values on the downside. Scams and frauds are uncovered. Scapegoats are found for the financial distress caused object so richly desired as the bubble inflated becomes an object of ridicule and disgust, along with anyone or anything associated with it.

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"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

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