History
General Information

William N. Goetzmann

History is important to the study of financial bubbles precisely because
they are extremely rare events, but history can be misleading. The rarity
of bubbles in the historical record makes the sample size for inference small.
Restricting attention to crashes that followed a large increase in market
level makes negative historical outcomes salient. In this chapter, I examine
the frequency of large, sudden increases in market value in a broad panel of
world equity market data extending from the beginning of the 20th century.
I find that the probability of a crash conditional on a boom is only
slightly higher than the unconditional probability. The chances that a market
gave back its gains following a doubling in value are about 10%. In
simple terms, bubbles are booms that went bad. Not all booms are bad.

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