Using the past to develop a new understanding of financial bubbles
Research using the past to develop a new understanding of financial bubbles to influence current economic policy and investor decision-making, hoping to impact and inform independent investors, financial institutions, policymakers, and politicians.
Interdisciplinary research led by Dr William Quinn and Professor John Turner set out to understand the economic. social and political environment in which financial bubbles develop. The aim of the research was to develop a model of the causes of financial bubbles by drawing on historical bubble episodes. The impact of this research will help investors and government policymakers to better identify bubble episodes in the future.
The principal research output was a book titled Boom and Bust: A Global History of Financial Bubbles. The book was published in August 2020 by Cambridge University Press. It explains and explores the causes of ten famous financial bubbles, for example, the housing bubble in the 2000s, the dot-com bubble, the bubbles in China in 2007 and 2015, and the Japanese bubble in the late 1980s, going right back to the first financial bubble in 1720.
Quinn and Turner wanted to develop a complete history of financial bubbles since the last major general history of financial bubbles was written in the 1970s.
Quinn and Turner also wanted to help to shift the understanding away from the idea that bubbles are naturally occurring or organic phenomena. Instead, they wanted to shed light on, and bring forward an awareness, that many financial bubbles have political roots and may be politically engineered.
Quinn and Turner imply that financial bubbles do not exist within a vacuum. The root cause is what they wanted to highlight; there are real reasons, genuine causes for individual bubbles. Dr Quinn stated in an interview that 'it is those causes that are something that we can actually do something about'.
A new theoretical framework for financial bubbles
Quinn and Turner developed a new theoretical framework for explaining the cause of financial bubbles that they hope will impact and inform independent investors, financial institutions, policymakers, and politicians. They use an accessible analogy of 'fire' to explain how bubbles develop. The fire analogy seeks to illustrate that financial bubbles are as volatile as fire – a bubbles is 'tangible and destructive, self-perpetuating and difficult to control once it begins'.
The book has sold over 20,000 copies in English and has been translated into Korean, and is being translated into Japanese, Turkish, Russian, and Portuguese.
Boom and Bust: A Global History of Financial Bubbles has been widely read and reviewed, including a review from The Institute of Chartered Financial Analysts, and the book was included in the International Monetary Fund’s summer reading list. Boom and Bust was reviewed in mainstream press: Financial Times, LSE Review of Books, New York Review of Books, The Irish Times, The Critic, and Times Literary Supplement.
The research output has garnered attention from leading newspapers, with articles published in the Financial Times, Wall Street Journal, New York Times, The Guardian, and the Washington Post. It has also appeared in articles on Bloomberg, the BBC, Politico, Psychology Today, and Quartz. Major foreign-language papers have discussed the book, including in Spain, Germany, France, and Argentina.
Engagement with investors
Quinn and Turner have engaged with and influenced professional investors. They have made presentations to analysts at NatWest Markets, participants at the Global Risk Institute Summit, analysts at the CFA Rochester branch, and delegates at the Jefferies Asia Forum. They have also spoken about their work on a Goldman Sachs podcast. Major asset managers and investment houses, such as Raymond James Wealth Management Group, Investec, Interactive Investor, and Morningstar, covered their work in their letters and advice to their clients.
As well as professional investors, Quinn and Turner’s work has helped retail investors think about how to invest during bubbly episodes. To this end, Quinn and Turner have appeared on a variety of podcasts and radio shows which are aimed at retail investors. These include Money Life, Talking Stock With Vincent Wall, Gold Newsletter Podcast, Real Vision, and The Evidence Based Investor. Their work has also been covered extensively by publications which are popular with retail investors such as Andreesen Horowitz Future, Business Insider, MarketWatch, ValueWalk, Seeking Alpha, Cointelegraph, Mint, Money, MoneyWeek, and the Investor’s Chronicle.
Quinn and Turner’s engagement with investors has helped both professional and retail investors understand that a technology and cryptocurrency bubble was underway during the pandemic. It warned them that the bubble would eventually burst. For this reason, Moneybox named Boom and Bust one of the top investing books for beginners and Markets Insider told investors to put Boom and Bust on their reading list if they wanted to understand investing and conquer bear markets.
Engagement with policymakers
UK Government Economic Service
Quinn and Turner also presented their research findings to over 100 economists in the Government Economic Service. The feedback they received was positive, with some participants agreeing that the book presented a clear understanding of why financial bubbles happen as well as their wider economic consequences.
Central Bank of Ireland
Given the detrimental impact of the Irish housing bubble in the 2000s, the central Bank of Ireland were very keen to hear from Quinn and Turner about why bubbles happen and their economic impact. At a presentation to over 80 central bankers at the Central Bank of Ireland, Quinn and Turner explained what central bankers can do to prevent future detrimental bubbles from occurring.
Federal Reserve Board, Washington DC
Quinn and Turner note that a significant role of the Federal Reserve is to maintain financial stability in the United States, the world’s largest economy. Therefore, presenting to the economists at the Federal Reserve is important. The hope is that their meetings with Federal Reserve economists influence policymakers’ thinking on how financial bubbles are framed and how to respond to them.
Quinn and Turner suggest that this research advocacy work could help to ensure that what happened in the 2008 housing bubble does not happen again, as the bursting of a bubble can have considerable negative knock-on consequences for real lives.
The research output has received the awards:
- Financial Times: Economics Book of the Year (2020)
- Five Books: Economics Book of 2020
- Irish Examiner: Best Business Book of the Year (2020)
- The Enlightened Economist: Book of the Year (2020)
- Choice, 2021 Outstanding Academic Titles in Economics (2021)
- SpeakAudible, 10 Best Economics Audiobooks in 2022 (2022)