There is the view that bubbles are crazy price extremes that move to high levels without any basis in facts. In reality, bubbles go through stages of development that play-out through time. There is no one bubble stage but four as described by Jean-Paul Rodrigue. Bubbles start as some stealth view about a market that leads to a take-off and then moves to an awareness phase. As awareness grows, there is a movement to mania only to fall during the blow-off phase.
Do these four stages match reality of bubbles? The Rodrigue model is a narrative, a story of what happens during a bubble. The model does not tell us anything about causes or factors that lead to bubbles. It is not a predictive model but just a description, yet descriptions can be very useful for our understanding.
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