Moral Hazard and The US Stock Market

Analysing the ‘Greenspan Put

Datos Bibliográficos

ID9716773
AutoresMarcus Miller (0000-0003-1030-457X, University of Warwick and CEPR), Paul Weller (0000-0002-5083-421X, University of Iowa), Paul Gareth Weller (0000-0003-1690-5261, University of Iowa), Lei Zhang (0000-0003-4889-6486, University of Warwick)
Año2002
Volumen112
Número478
PáginasC171-C186
Fecha de publicación2002-03-01
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaThe Economic Journal (JOURNAL)
Identificadores de la revistaISSN: 0013-0133 • E-ISSN: 1468-0297
EditorialOxford University Press (OUP) (PUBLISHER)
DOI10.1111/1468-0297.00029
OpenAlexW3124272296
IdiomaEN
Citas recibidas5
Referencias citadas12

When the risk premium in the US stock market fell substantially, Shiller (2000) attributed this to a bubble driven by psychological factors. An alternative explanation is that the observed risk premium may be reduced by one‐sided intervention policy on the part of the Federal Reserve which leads investors into the erroneous belief that they are insured against downside risk. By allowing for partial credibility and state dependent risk aversion, we show that this 'insurance' – referred to as the Greenspan put – is consistent with the observation that implied volatility rises as the market falls. Our bubble is not so much 'irrational exuberance' as exaggerated faith in the stabilising power of Mr. Greenspan

Credibility · Downside risk · Economics · Expected utility hypothesis · Faith · Financial economics · Keynesian economics · Microeconomics · Monetary economics · Monetary policy · Moral hazard · Risk aversion (psychology · Stock (firearms · Stock market · Theology · Volatility (finance · Financial Markets and Investment Strategies · Market Dynamics and Volatility · Monetary Policy and Economic Impact · Philosophy