An Evaluation of Recent Evidence on Stock Market Bubbles

  title={An Evaluation of Recent Evidence on Stock Market Bubbles},
  author={Robert P. Flood and Robert J. Hodrick and Paul D. Kaplan},
  journal={Capital Markets: Asset Pricing \& Valuation},
Several recent studies have attributed a large part of asset price volatility to self-fulfilling expectations. Such an explanation is unattractive to many since it allows allocations that need bear no particular relation to those implied by the economist's standard kit ofmarket fundamentals. We examine the evidence presented in some of thesestudies and find (i) that all of the bubble evidence can equally well beinterpreted as evidence of model misspecification and (ii) that a slight extension… 

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  • Economics
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  • 1986
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