Bubbles, Fads, and Stock Price Volatility Tests: a Partial Evaluation

35 Pages Posted: 19 Jul 2010 Last revised: 19 Jul 2022

See all articles by Kenneth D. West

Kenneth D. West

University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 1988

Abstract

This is a summary and interpretation of some of the literature on stock price volatility that was stimulated by Leroy and Porter (1981) and Shiller (1981a). It appears that neither small sample bias, rational bubbles nor some standard models for expected returns adequately explain stock price volatility. This suggests a role for some nonstandard models for expected returns. One possibility is "fads" models in which noise trading by naive investors is important. At present, however, there is little direct evidence that such fads play a significant role in stock price determination.

Suggested Citation

West, Kenneth D., Bubbles, Fads, and Stock Price Volatility Tests: a Partial Evaluation (May 1988). NBER Working Paper No. w2574, Available at SSRN: https://ssrn.com/abstract=1641018

Kenneth D. West (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

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