Enacting Market Crisis: The Social Construction of a Speculative Bubble

Abstract

The authors thank Steve Barley, John Forester, John Freeman, Mark Granovetter, Bob Stern, and Richard Thaler for their comments on earlier drafts of this paper. This study shows how the emotional phases that accompany market crisis can be related to an underlying cycle of actions, attributions, and regulatory reactions among participants in the market environment. The action-attribution-regulation process is here called enactment, in order to focus on how market participants create the environment that then impinges on their activity. We illustrate this process with a case study of the 1980 crisis in the silver futures market, when prices soared from $10 per ounce to $50 per ounce and fell back to $10 per ounce in seven months. The traditional mania/distress/panic model of speculative bubbles is reframed as a cycle of organizing, focusing on the strategic actions of buyers, sellers, bankers, and government agencies. The paper shows how the crisis, enacted by market participants who created speculative opportunities, was resolved through the cooperation of powerful organizations that sought to protect the solvency of insiders and the integrity of the market. This view of market process suggests a cycle of action and institutional constraint that shapes the structure of market environments.'