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How Did It Happen?
Author(s) -
Brennan Michael J.
Publication year - 2004
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/j.0391-5026.2004.00123.x
Subject(s) - profitability index , economics , investment (military) , agency (philosophy) , stock (firearms) , stock price , production (economics) , financial economics , business , monetary economics , microeconomics , finance , politics , political science , mechanical engineering , paleontology , philosophy , epistemology , series (stratigraphy) , law , biology , engineering
This paper discusses the factors that led up to the stock price bubble of the 1990s. Foremost among these, it is argued, was the conventional view that stocks are the investment of choice for the long‐run investor regardless of their price. This conventional view was based on a misunderstanding of academic theories developed over the past half century. Additional factors were the changing nature of US pensions which placed much more responsibility on the shoulders of the individual investor, and agency problems in investment management and the production of information about firm profitability. Finally there is some evidence that required rates of return were declining during this period.(J.E.L.: G10 and G23).