Stock Market Bubbles股票市场泡沫.doc

Stock Market Bubbles (Financial Euphoria) We have noted that the Efficient Market Hypothesis assumes that asset prices are rational and reflect the information available. We can also note that as individual investors respond to new information their acts may be rational but the overall cumulative impact of all those individual rational actions can produce a short-term over-reaction in the market and prices may overshoot the new ‘correct’ price level before quickly returning to that rational price. Experience of the markets, however, indicates that, from time to time, prices move away from any rational valuation and take some time before reverting to the fair equilibrium position. In those cases the prices may move well away from any rational valuation and the market correction, when it comes, can be sharp and cause major difficulties. These situations are referred to as ‘bubbles’ and are caused by a psychological/behavioral response that was called, by the economist J K Galbraith “Financial Euphoria”. A chairman of the American Fed coined an equally useful name aimed at Financial Euphoria in stock markets –“Irrational Exuberance”. Although all forms of financial traded market are open to the impact of Financial Euphoria its impact on Stock Markets as a result of the participation of many more private investors and the trend of such institutions as Pension Funds (who effectively hold the savings of many individuals) to invest in them. One of the underlying functions which allows for ‘bubbles’ is the ease of investment and disinvestment, particularly in the case of stock markets, the impact of deregulation, electronic trading and internet platforms has made these actions much more accessible. Financial Euphoria has always been a part of the financial markets (we can trace back such episodes to the days of the Roman Empire) but the above noted changes to the market place seem to have increased their frequency. In A Short History of Financial Euphoria, J. K. Galbraith