News Release: Faculty Experts, Finance and Economics, Research, University News

Oct. 31,  2008

Get Used to Roller Coaster Stock Market, Says Economist

Global financial markets lurched to a close this week on another roller coaster ride, but these up and down market swings are with us for the foreseeable future, says Emory economist Hashem Dezhbakhsh. "The stock market is sensitive to negative news, so we better get used to it," he says of the current economic situation.

Fortunately, even with the turmoil in global markets, Dezhbakhsh says that the effects on the U.S. market "are not symmetric. The U.S. market affects the international market much more than the international market affects the U.S."

Even OPEC, desperate to halt the downward slide in oil prices by announcing production cuts, is at the mercy of forces bigger than itself. "OPEC controls only about 40 percent of the oil supply," Dezhbakhsh says. "Plus, there's a global economic slowdown and reduced demand. In 1998, we had a global slowdown and East Asia, Russia and Brazil were suffering a financial crisis that sent oil to $12 a barrel. It would be hard for OPEC to affect oil prices by cutting production at this point."

Still, "when you think about oil being $150 a barrel in July then three months later it's down to $60 a barrel—they have to say they're going to do something, at least as posturism," Dezhbakhsh points out.

This week's appearance before Congress of Alan Greenspan signifies that the former Federal Reserve chairman’s legacy will not be what it once was, says Dezhbakhsh. "The more you think about it, the more you realize his policies of pushing liquidity contributed to the crisis." Greenspan also promoted adjustable rate mortgages, "which is one of the contributing causes of the crisis we have now."

Dezhbakhsh asserts that by being a strong proponent of open markets, Greenspan promoted excessive risk taking by various players in the market, mostly at the expense of someone else. "It's all a matter of incentive."

Dezhbakhsh, chair of Emory's Department of Economics, specializes in financial markets and volatility, the oil market and applied econometrics.

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