Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • August 2018
  • Article
  • Journal of Financial Economics

Extrapolation and Bubbles

By: Nicholas Barberis, Robin Greenwood, Lawrence Jin and Andrei Shleifer
  • Format:Print
ShareBar

Abstract

We present an extrapolative model of bubbles. In the model, many investors form their demand for a risky asset by weighing two signals: an average of the asset’s past price changes and the asset’s degree of overvaluation. The two signals are in conflict, and investors “waver” over time in the relative weight they put on them. The model predicts that good news about fundamentals can trigger large price bubbles. We analyze the patterns of cash-flow news that generate the largest bubbles, the reasons why bubbles collapse, and the frequency with which they occur. The model also predicts that bubbles will be accompanied by high trading volume and that volume increases with past asset returns. We present empirical evidence that bears on some of the model’s distinctive predictions.

Keywords

Bubble; Extrapolation; Volume; Price Bubble; Mathematical Methods

Citation

Barberis, Nicholas, Robin Greenwood, Lawrence Jin, and Andrei Shleifer. "Extrapolation and Bubbles." Journal of Financial Economics 129, no. 2 (August 2018): 203–227.
  • Find it at Harvard
  • Read Now

About The Authors

Robin Greenwood

Finance
→More Publications

Andrei Shleifer

Negotiation, Organizations & Markets
→More Publications

More from the Authors

    • February 2023
    • Faculty Research

    Success Academy Charter Schools

    By: Robin Greenwood, Joshua D. Coval, Denise Han, Ruth Page and Dave Habeeb
    • February 2023
    • Faculty Research

    Success Academy Charter Schools

    By: Robin Greenwood, Joshua Coval and Denise Han
    • 2022
    • Faculty Research

    The Disappearing Index Effect

    By: Robin Greenwood and Marco Sammon
More from the Authors
  • Success Academy Charter Schools By: Robin Greenwood, Joshua D. Coval, Denise Han, Ruth Page and Dave Habeeb
  • Success Academy Charter Schools By: Robin Greenwood, Joshua Coval and Denise Han
  • The Disappearing Index Effect By: Robin Greenwood and Marco Sammon
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College