Bubbles for Fama

By Robin Greenwood, A. Shleifer, Yang You. Journal of Financial Economics, 2019

112 citations recorded by the source corpus.

We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in US and international samples.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/bca914845fa34febccce54cd95dac239871d1c04

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Citations in the corpus

Psychology-based Models of Asset Prices and Trading Volume (2018, methodology): “However, Greenwood et al. (2018) show that, by conditioning on other observables, it is possible to say, even while the price of an asset is still rising, that there is an increased likelihood that the episode constitutes a bubble – in other words, that the price rise will eventually be followed by ”