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Economic Price Bubbles

Malkiel in in his paper suggest that Efficient Market Hypothesis is the belief that markets are efficient in reflecting the available information about a stock and new information is incorporated into the price without delay.4 Malkiel also references specific examples of asset price bubbles occurring in efficient markets. His paper published prior to the housing bubble specifically references the seemingly irrational and inefficient events of the October 1987 Share Market Crash and the Internet Bubble of the late 1990s. He suggests that in hindsight these events had reasoning that could be considered rational and happened in efficient markets whilst not discounting the fact that irrational behavior does still play a role in these bubbles. Courtois provides a succinct summary stating "economists don't yet fully understand all the fact that might cause markets to occasionally get prices wrong. To explain this, you can favor behavioral theoriesor difficult of accessing information but none of these explanations are inherently at odds with the EMH".5.
             There is little doubt in the literature that the recent recession in the United States partly due to the resultant popping of the house price and mortgage backed securities asset price bubbles. Courtois so elegantly states, "Housing prices soared, and securities backed by risky subprime mortgages were sold throughout the financial system at prices thatdidn't reflect their true risk."6 In his article Courtois also suggest that house prices were "unjustified by economic fundamentals" which according to the aforementioned definitions suggests an asset price bubble. Evanoff et al. also suggest that the global financial crisis if 2007-09, "induced in large part bya crashing of the housing market, had a significantly adverse impact on both the U.S and global economies."7.
             Given the impact on the U.S.


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