Lecture 8

Lecture 8 - Econ 102 Fall 2006 Lecture 8 Bubbles and Asset...

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1 Econ 102 Fall 2006 Lecture 8 Bubbles and Asset Prices
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2 Topics What is a fundamental? What is the fundamental theory of asset pricing? What is a bubble? How does a bubble arise?
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3 Bubbles Historical examples of bubbles South Sea Bubble Tulip mania Tech Boom – 1990s Housing Boom
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4 South Sea Bubble The South Sea Bubble started in 1711, after a war which left Britain in debt by 10 million pounds. The Government granted the South Sea Company a monopoly on trading in the South Sea in return for financing its debt at 6% interest The stock of the company exploded
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5 South Sea Bubble 100 pounds a share 1000 pounds a share
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6 Tulip Mania 1637 Holland A tulip, known as "the Viceroy", displayed in a 1637 Dutch catalog. Its bulb cost between 3000 and 4200 florins depending on size. A skilled craftsman at the time earned about 150 florins a year. This would be equivalent to paying 1 million dollars today for a tulip bulb Mackay – Extraordinary Popular Delusions and the madness of Crowds
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Lecture 8 - Econ 102 Fall 2006 Lecture 8 Bubbles and Asset...

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