Fads and the Crash of '87

Mustafa Chowdhury, Ji-chai Lin

Research output: Journal article publicationJournal articleAcademic researchpeer-review

6 Citations (Scopus)

Abstract

This paper examines changes in return‐generating processes before and after the crash of '87. We find that the process for daily returns of size‐sorted portfolios changed from an ARMA(1, 2) in the pre‐crash period to a MA(1) in the post‐crash period. The change is explained by a “fads” model similar to that proposed by Poterba and Summers [17]. The analysis suggests that the crash may have been related to speculative fads that prevailed prior to the crash. The fads component in stock prices then disappeared after the crash. Other possible explanations are also discussed.
Original languageEnglish
Pages (from-to)385-401
Number of pages17
JournalFinancial Review
Volume28
Issue number3
DOIs
Publication statusPublished - 1 Jan 1993
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this