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 . 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.
|Number of pages||17|
|Publication status||Published - 1 Jan 1993|
ASJC Scopus subject areas
- Economics and Econometrics