NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bubble Investing: Learning from History

William N. Goetzmann

NBER Working Paper No. 21693
Issued in October 2015, Revised in January 2016
NBER Program(s):Asset Pricing

History is important to the study of financial bubbles precisely because they are extremely rare events, but history can be misleading. The rarity of bubbles in the historical record makes the sample size for inference small. Restricting attention to crashes that followed a large increase in market level makes negative historical outcomes salient. In this paper I examine the frequency of large, sudden increases in market value in a broad panel data of world equity markets extending from the beginning of the 20th century. I find the probability of a crash conditional on a boom is only slightly higher than the unconditional probability. The chances that a market gave back it gains following a doubling in value are about 10%. In simple terms, bubbles are booms that went bad. Not all booms are bad.

download in pdf format
   (658 K)

email paper

A non-technical summary of this paper is available in the January 2016 NBER digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21693

Published: Goetzmann William N. Research Foundation Books 2016 2016:3, 149-168

Users who downloaded this paper also downloaded* these:
House and Tesar w21688 Greek Budget Realities: No Easy Options
Gopinath w21646 The International Price System
Mian, Sufi, and Verner w21581 Household Debt and Business Cycles Worldwide
Cooper, McClelland, Pearce, Prisinzano, Sullivan, Yagan, Zidar, and Zwick w21651 Business in the United States: Who Owns it and How Much Tax Do They Pay?
Abramitzky w21636 Economics and the Modern Economic Historian
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us