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Bubbles for Fama
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DOI：10.1016/j.jfineco.2018.09.002.png)
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Abstract
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We evaluate Eugene F. 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 but not of a further price boom; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up, help forecast an eventual crash; and (4) these attributes also help forecast future returns. Results hold similarly in US and international samples. (C) 2018 Published by Elsevier B.V.
Keywords:
Bubble
Market efficiency
Predictability
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