Re: housing bubble overcorrection
On Nov 22, 2006, at 2:50 PM, Keith Nybakke wrote:
“All manias end with a reverting past the mean - falling to levels
seen before the bubble started.”I ran across this statement while looking at several housing bubble
blogs. It was repeated, in some form or another, several times.Is it a valid truism?
It’s usually thought to be, by people who believe in bubbles. People
who believe that markets are rational and/or random would reject
that. But the existence of bubbles has more adherents now than in the
heyday of efficient market theory in the 70s and 80s, thanks in no
small part to Robert Shiller’s work. For a stock market example, see
http://www.econ.yale.edu/~shiller/online/jpmalt.pdf, exhibit 4.
The US stock market bubble of the 1990s reverted to mean, but never
really went beyond that. So there’s reason to believe the fat lady is
still just warming up.
Doug