If a prediction of a recession causes the market to crash, can it be said that the prediction itself is part of the cause of the recession? Like a self-fulfilling prophecy?

Question

If a prediction of a recession causes the market to crash, can it be said that the prediction itself is part of the cause of the recession? Like a self-fulfilling prophecy?

In: Economics

Answer 1

In a liquid marketplace for goods and services, not really. If you can nail down the fundamental value of something, or even a range, that is where the other side of a trade will come in and protect whatever level. Ie if a crazy consumer reports article says THE PRICE OF CARS IS GOING BANANAS, and it manages to force the price up (as you suggest) at a certain point people will start buying bus passes and selling cars. The market corrects. Shitty example, granted.

In a niche, financially-settled market controlled by a collection of spec players (not producers of anything, not consumers of anything)…. sure!!