Market and Enviromental Uncertainty

Stock market crashes are rare, highly visible, and difficult to explain — a combination that evokes serious debate about the underlying causes of stock price movements. Keynes’ dismissal of liquid stock markets as promoting ‘a game of Snap, of Old Maid, of Musical Chairs,’ and his emphasis on ‘animal spirits’ an ‘waves of irrational psychology,’ Shleifer and Summers (1990) interpret the crash of October 1987 as a clear demonstration of the inadequacy of the efficient markets hypothesis, and propose an alternative model based on investor irrationality.