NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Speculative Dynamics

David M. Cutler, James M. Poterba, Lawrence H. Summers

NBER Working Paper No. 3242
Issued in January 1990
NBER Program(s):   ME   EFG

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.

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Document Object Identifier (DOI): 10.3386/w3242

Published: Review of Economic Studies 58(3): 529-546, May 1991. citation courtesy of

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