Bubbles for Fama

Robin Greenwood, Andrei Shleifer and Yang You

No 23191, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: G02 G1 G12 G14 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-rmg
Note: AP CF IFM
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Citations: View citations in EconPapers (8)

Published as Robin Greenwood & Andrei Shleifer & Yang You, 2018. "Bubbles for Fama," Journal of Financial Economics, .

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Related works:
Journal Article: Bubbles for Fama (2019)
Working Paper: Bubbles for Fama (2017)
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