Taming Global Village Risk II: Understanding and Mitigating Bubbles

Asset bubbles and their subsequent bursts have been a part of capital markets since modern capital markets began to evolve some 300 years ago. Although each bubble environment has its own distinguishing characteristics, certain common elements persist over time as the key ingredients of market bubbl...

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Bibliographic Details
Published in:Journal of portfolio management 2009-07, Vol.35 (4), p.131-141
Main Author: Sullivan, Rodney N
Format: Article
Language:English
Subjects:
20th century
Banking
Capital markets
Collateralized debt obligations
Economic crisis
Equity
Global economy
Hedge funds
Innovations
Investments
Investors
Liquidity
Program trading
Risk management
Securities industry
Social psychology
Speculation
Stock exchanges
Success
Technological change
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Summary:Asset bubbles and their subsequent bursts have been a part of capital markets since modern capital markets began to evolve some 300 years ago. Although each bubble environment has its own distinguishing characteristics, certain common elements persist over time as the key ingredients of market bubbles-financial innovation, the emotions and psychology of investors, and leverage. The author explores how these features present themselves in market bubbles and the ensuing market disruptions, and offers some suggestions for improving future risk management. Among the recommendations is a strong, yet flexible, oversight framework having the goal of identifying and containing areas of excessive economic risk. [PUBLICATION ABSTRACT]
ISSN:0095-4918
2168-8656
DOI:10.3905/JPM.2009.35.4.131