This paper presents evidence on the characteristic speculative dynamics of a wide
range of asset returns. It highlights three stylized facts. First, returns tend to
be positively serially correlated at high frequency. Second, returns tend to be
negatively serially correlated over long horizons. Third, deviations of asset values
from proxies for fundamental value have predictive power for returns. These patterns
emerge repeatedly in our analyses of stocks, bonds, foreign exchange, real estate,
collectibles, and precious metals, and they appear too strong to be attributed only to
small sample biases. The pervasive nature of these patterns suggests that they may be
lie to inherent features of the speculative process, rather than to variation in risk
factors which affect particular markets.
*Published:
Review of Economic Studies 58(3): 529-546, May 1991.
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