Market Crashes Without External Shocks

Sergiu Hart and Yair Tauman

(Acrobat PDF file)

It is shown here that market crashes and bubbles can arise without external shocks. Sudden changes in behavior coming after a long period of stationarity may be the result of endogenous information processing. Except for the daily observation of the market, there is no new information, no communication and no coordination among the participants.

Journal of Economic Literature Classification Numbers: C70, D82, D83, G10

For a simplified version, see