Asset price bubbles and crashes will occur in the future, according to Federal Reserve Bank of San Francisco President and CEO John C. Williams, but research may help unlock "their secrets."
"A cursory reading of the academic literature on asset prices reveals a litany of puzzles, conundrums, paradoxes, and anomalies," Williams Monday told the National Association for Business Economics' 55th annual meeting. "Much of the research on asset prices continues to rely on highly stylized models with identical agents, rational expectations, and optimizing behavior. According to the prevailing view, asset price surges that many would perceive to be bubbles are not really so. Instead, they are seen to reflect the influences of fundamental forces, such as a decline in risk appetite."