Resource Discovery and Stock Market Hysteresis

12 Pages Posted: 5 Nov 2006

See all articles by Saziye Gazioglu

Saziye Gazioglu

Robert Gordon University - Aberdeen Business School

W. David McCausland

University of Aberdeen - Business School

Date Written: January 2006

Abstract

This paper provides a possible explanation for stock market hysteresis following an resource discovery. We show the existence of a parallel stock market effect 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, we show 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.

Keywords: stock market, multiple equilibria, hysteresis

JEL Classification: E32, G10, Q33, Q43

Suggested Citation

Gazioglu, Saziye and McCausland, W. David, Resource Discovery and Stock Market Hysteresis (January 2006). Available at SSRN: https://ssrn.com/abstract=942276 or http://dx.doi.org/10.2139/ssrn.942276

Saziye Gazioglu

Robert Gordon University - Aberdeen Business School ( email )

Garthdee Road
Aberdeen AB10 7QE
United Kingdom

W. David McCausland (Contact Author)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Old Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom

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