Speculative Dynamics

57 Pages Posted: 24 Jul 2007 Last revised: 10 Sep 2008

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: January 1990

Abstract

This paper presents evidence on the characteristic speculative dynamics of a wide range of asset returns. It highlights three stylized facts. First, returns tend to be positively serially correlated at high frequency. Second, returns tend to be negatively serially correlated over long horizons. Third, deviations of asset values from proxies for fundamental value have predictive power for returns. These patterns emerge repeatedly in our analyses of stocks, bonds, foreign exchange, real estate, collectibles, and precious metals, and they appear too strong to be attributed only to small sample biases. The pervasive nature of these patterns suggests that they may be lie to inherent features of the speculative process, rather than to variation in risk factors which affect particular markets.

Suggested Citation

Cutler, David M. and Poterba, James M. and Summers, Lawrence H., Speculative Dynamics (January 1990). NBER Working Paper No. w3242. Available at SSRN: https://ssrn.com/abstract=366444

David M. Cutler (Contact Author)

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James M. Poterba

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Lawrence H. Summers

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Harvard University - Harvard Kennedy School (HKS) ( email )

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United States

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