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A crisis in the stock market may severally affect the redistribution of wealth and reallocation of resources. The role of speculative behaviour in creating the crisis has been prominently studied. Speculative trading, reflected in the existence of price bubbles, drives market inefficiency which ultimately results a market failure. Studies on price bubbles are, generally working under efficient market condition and using firm fundamental value as a basis. In this book, instead of fundamental value, the investors financial capability to sustain the bubbles will be applied as constraint in maintaining the bubbles. This later approach may go beyond the efficient market concept. The stock market crisis model developed in this book is designed within two basic factors affecting the crash: (1) the behaviour of the investors and; (2) the investors debt paying ability as a measurement of capability to maintain the bubbles. The misperception risk is embedded in the speculative behaviour. The empirical testing indicates that the stock market crash in Indonesia capital market were affected by the two factors above.
About the author
Soemarso Slamet Rahardjo earned a Doctoral degree in economics from the University of Indonesia in 2012 and currently serves as a teaching staff at the Department of Accountancy, Faculty of Economics at the same University. He also serves as member of the board of commissioners and audit committee for several companies in Indonesia.
