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  • January 2019
  • Article
  • Journal of Financial Economics

Bubbles for Fama

By: Robin Greenwood, Andrei Shleifer and Yang You
  • Format:Print
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Abstract

We evaluate Eugene Fama's claim that stock prices do not exhibit price bubbles. Based on U.S. 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 U.S. and international samples.

Keywords

Bubble; Market Efficiency; Predictability; Price Bubble; Stocks; Price; Forecasting and Prediction

Citation

Greenwood, Robin, Andrei Shleifer, and Yang You. "Bubbles for Fama." Journal of Financial Economics 131, no. 1 (January 2019): 20–43. (Internet Appendix Here.)
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About The Authors

Robin Greenwood

Finance
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Andrei Shleifer

Negotiation, Organizations & Markets
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