Abstract
We develop a tractable model in which asset prices are driven by the epidemic spread of certain investment ideas. Once an idea “goes viral,” equilibrium prices exhibit a pattern of boom and bust. In turn, we identify a timeline of symptoms, which indicate whether a boom is in its early or later stages. Moreover, we find that prices start to decline while the number of infected agents, who buy the asset, is still rising. The presence of rational agents, who correctly anticipate the cycle, accelerates booms, lowers peak prices and tends to produce broad, drawn-out, market tops.
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