Bubbles for Fama

Robin Greenwood, Andrei Shleifer and Yang You

Journal of Financial Economics, 2019, vol. 131, issue 1, 20-43

Abstract: We evaluate Eugene F. 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 but not of a further price boom; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up, help forecast an eventual crash; and (4) these attributes also help forecast future returns. Results hold similarly in US and international samples.

Keywords: Bubble; Market efficiency; Predictability (search for similar items in EconPapers)
JEL-codes: G02 G11 G12 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Bubbles for Fama (2017)
Working Paper: Bubbles for Fama (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:131:y:2019:i:1:p:20-43

DOI: 10.1016/j.jfineco.2018.09.002

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