Weller Comments on the 'Greenspan Put'
Bookmark & ShareFebruary 14, 2002
Source: National Post
After three months of good advances in North American markets, investors seem ready to pack the bear in a box and bury it. Good idea? Absolutely not, says PAUL WELLER, a professor at the Tippie College of Business at the University of Iowa. He suggests in a recent paper, written with two colleagues, that a significant bubble still underpins the entire Standard & Poor's 500 -- a bubble, says Prof. Weller, most improbably, the result of Alan Greenspan's stellar job performance. According to Mr. Weller, investors were so impressed by the Fed's ability to prevent a market break in 1987 and its agility in negotiating the credit crunch of 1998 that an irrational perception has developed among investors that the Fed can successfully negotiate any form of market turbulence. As a result, investors have discounted the risk in the stock market, a phenomenon Mr. Weller calls the "Greenspan put."
Contact: George McCrory, UI News Service, 319-384-0012
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