An overview of potential financial bubbles in the US financial markets

Financial bubbles have presented a challenge for the financial markets for a long time and caused steep losses for many investors. This thesis has two main goals relating to financial bubbles. The first is to try to determine if it is possible to find out if a financial bubble is forming. To accomplish that, the economic theories that govern bubble formation and burst are analyzed and the models that exist to predict bubble formation are discussed. A new model is suggested and is applied in the US financial markets to determine if any of the asset classes are currently risking the development of a bubble. This analysis suggests that one asset class is likely to be developing a bubble and this thesis further discusses this asset class. The second objective of this thesis is to suggest alternatives that prudent investors could introduce to protect themselves from some of the worst consequences of bubbles. This thesis will suggest models inspired by completely different industries: the air transportation industry with its high safety standards; the oil industry with its long-term planning; and the socially responsible investment industry, with its self-regulatory structure.

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2013

Author dc:creator

• Sadalla, Marco Antonio V. (Marco Antonio Vieira)

Advisor dc:contributor.advisor

• Robert C. Merton.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/81012

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/81012