Stock Market Bubbles and Anti-Bubbles

42 Pages Posted: 27 Oct 2016 Last revised: 31 Jul 2018

See all articles by Martin Tarlie

Martin Tarlie

GMO

Georgios Sakoulis

Quantitative Management Associates (QMA) LLC

Roy Henriksson

Quantitative Management Associates (QMA) LLC

Date Written: July 11, 2018

Abstract

Using a simple model of equity valuation, we de fine stock market bubbles and anti-bubbles as periods in which the dynamics of valuation is temporarily explosive. We identify a mechanism for the creation and destruction of bubbles and anti-bubbles that depends on the interaction between valuation and expected change in corporate pro fitability. Topically, we fi nd that valuation dynamics are explosive in 2017, suggesting the possible formation of an equity bubble in the US.

Keywords: Asset Pricing, Bubbles, Anti-Bubbles, Multiple Bubbles, Price Explosiveness, Explosive Autoregression

JEL Classification: G10, G12, C22

Suggested Citation

Tarlie, Martin and Sakoulis, Georgios and Henriksson, Roy, Stock Market Bubbles and Anti-Bubbles (July 11, 2018). Available at SSRN: https://ssrn.com/abstract=2859795 or http://dx.doi.org/10.2139/ssrn.2859795

Martin Tarlie (Contact Author)

GMO ( email )

United States
617-790-5072 (Phone)

Georgios Sakoulis

Quantitative Management Associates (QMA) LLC ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

Roy Henriksson

Quantitative Management Associates (QMA) LLC ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

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