When the bubble bursts: psychology or fundamentals?

The prices of stocks, bonds, and other assets frequently fluctuate, and sometimes these fluctuations are quite large. Such price shifts have important economic implications, including the possibility that asset prices have predictive power for the business cycle. In this article, Lee Ohanian analyzes the volatility of security prices and discusses whether movements in asset prices reflect changes in the fundamental value of the asset or whether extreme price changes may be associated with changes in market psychology