Bubbles for Fama

Robin  Greenwood; Andrei   Shleifer; Yang  You

Article | Journal of Financial Economics | January 2019

Bubbles for Fama

by Robin Greenwood, Andrei Shleifer and Yang You

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;

Format: Print

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Citation:

Greenwood, Robin, Andrei Shleifer, and Yang You. "Bubbles for Fama." Journal of Financial Economics 131, no. 1 (January 2019): 20–43. (Revised October 2017. Internet Appendix Here.)

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Bubbles for Fama

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