Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
Fama on Bubbles. / Engsted, Tom.
In: Journal of Economic Surveys, Vol. 30, No. 2, 2016, p. 370-376.Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
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TY - JOUR
T1 - Fama on Bubbles
AU - Engsted, Tom
PY - 2016
Y1 - 2016
N2 - While Eugene Fama has repeatedly expressed his discontent with the notion of an “irrational bubble,” he has never publicly expressed his opinion on “rational bubbles.” On empirical grounds Fama rejects bubbles by referring to the lack of reliable evidence that price declines are predictable. However, this argument cannot be used to rule out rational bubbles because such bubbles do not necessarily imply return predictability, and return predictability of the kind documented by Fama does not rule out rational bubbles. On data samples that include the 1990s, there is evidence of an explosive component in stock market valuation ratios, consistent with a rational bubble.
AB - While Eugene Fama has repeatedly expressed his discontent with the notion of an “irrational bubble,” he has never publicly expressed his opinion on “rational bubbles.” On empirical grounds Fama rejects bubbles by referring to the lack of reliable evidence that price declines are predictable. However, this argument cannot be used to rule out rational bubbles because such bubbles do not necessarily imply return predictability, and return predictability of the kind documented by Fama does not rule out rational bubbles. On data samples that include the 1990s, there is evidence of an explosive component in stock market valuation ratios, consistent with a rational bubble.
U2 - 10.1111/joes.12104
DO - 10.1111/joes.12104
M3 - Journal article
VL - 30
SP - 370
EP - 376
JO - Journal of Economic Surveys
JF - Journal of Economic Surveys
SN - 0950-0804
IS - 2
ER -