
buy stocks on the premise that the anticipation of rising prices will become a self-
fulfilling prophecy, even when companies do not enjoy favorable business
prospects (see Shefrin and Statman, 2000). Certain types of stock market bubbles
can be difficult to explain in a sensible way (see Siegel, 1999). They are similar
to Ponzi schemes that unravel when it becomes difficult or impossible to find
other willing participants. Stock market bubbles simply burst in an unpredictable
way when investors as a whole realize that prices are unsustainable.
Whereas stock market bubbles are often described as inconsistent with
rational behavior, there is a class of bubbles ...