Bubbles for Fama
We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US 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 US and international samples.
Document Object Identifier (DOI): 10.3386/w23191
Published: Robin Greenwood & Andrei Shleifer & Yang You, 2018. "Bubbles for Fama," Journal of Financial Economics, . citation courtesy of
Users who downloaded this paper also downloaded* these: