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Resource discovery and stock market hysteresis

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  • Saziye Gazioglu
  • W. David McCausland

Abstract

This paper provides a possible explanation for stock market hysteresis following a resource discovery. The existence of a parallel stock market effect is shown, independent of the standard 'Dutch disease' effect of a resource discovery. That is, there is a long-run fall in the stock market value in response to the resource discovery. Furthermore, it is shown that a sufficiently large discovery may lead to a switch from a 'high' to a 'low' stock market value equilibrium. If the resource discovery proves subsequently to be unfounded, the economy will become stuck in the low stock market value state. In other words, there is stock market hysteresis.

Suggested Citation

  • Saziye Gazioglu & W. David McCausland, 2006. "Resource discovery and stock market hysteresis," Applied Financial Economics, Taylor & Francis Journals, vol. 16(11), pages 785-788.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:11:p:785-788
    DOI: 10.1080/09603100500426580
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    References listed on IDEAS

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    1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    2. Roberts, Mark A. & McCausland, W. David, 1999. "Multiple international debt equilibria and irreversibility," Economic Modelling, Elsevier, vol. 16(2), pages 179-188, April.
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    Cited by:

    1. Charles Mossman & Sergiy Rakhmayil, 2011. "Firm size, book-to-market ratio and the macroeconomic environment: theory and test," Applied Economics, Taylor & Francis Journals, vol. 43(19), pages 2417-2431.

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