EconAir

Famous Headline INTRODUCTION Before reading this essay, I strongly recommend you see the PBS video on YouTube. Type in Stock Market Crash 1929. Look for US – The Crash of 1929 (PBS), ALLHISTORIES – PLAYLIST.  Documentary  broken into 6 parts to show commercials. Great documentary with wonderful photos, videos, and scenes from movies of the 1920s and the crash. Shows what a crazy time this was.    I also recommend you read Frederick Lewis Allen,  Only Yesterday; An Informal History of the 1920’s . This a wonderful popular history on the 1920s and the crash. It shows how the economic, social, and psychological changes in the 1920s contributed to the speculative frenzy in the stock market. The author lived through it all. You can skip some of the chapters the first time through; for example, skip Chapters III, VI, IX, And X.   DEFINITIONS The Stock Market . In the 1920s, this meant the New York Stock Exchange. This is where stocks (shares of part ownershi...

THE ECONOMICS OF FINANCIAL MARKETS MARKET-MAKERS, BIASED INFORMATION, AND FORECASTS This tutorial will look at financial markets and how they actually function.  There are two general theories about how financial markets work. The first is the Efficient Market Theory, which assumes all decision-makers are rational – they have access to information, can analyze it, and make investment decisions. Strangely, a major conclusion is that investors cannot predict stock price movements, which are random. The second is Behavioral Finance, which assumes that investors are irrational – they have a number of biases and are influenced by the markets’ past behavior. Both theories based on this supposed distinction that “explain” financial price behavior are irrelevant. What is left out of theoretical models of financial markets is how financial markets actually operate. Between buyers (investors) and sellers (including issuers of new securities), there are market makers like brokerage firms, man...