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

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Kenneth D. West

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2574.

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Date of creation: Oct 1989
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Handle: RePEc:nbr:nberwo:2574

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  1. Refet S. Gürkaynak, 2005. "Econometric tests of asset price bubbles: taking stock," Finance and Economics Discussion Series 2005-04, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  2. Joseph Chen & Harrison Hong & Jeremy C. Stein, 2000. "Forecasting Crashes: Trading Volume, Past Returns and Conditional Skewness in Stock Prices," NBER Working Papers 7687, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Peter C.B. Phillips & Yangru Wu & Jun Yu, 2009. "Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values?," Cowles Foundation Discussion Papers 1699, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  4. Glen Donaldson & Mark Kamstra & Lisa Kramer, 2003. "Stare down the barrel and center the crosshairs: Targeting the ex ante equity premium," Working Paper 2003-4, Federal Reserve Bank of Atlanta. [Downloadable!]
  5. M. Hashem Pesaran & Simon M. Potter, 1993. "Equilibrium Asset Pricing Models and Predictability of Excess Returns," UCLA Economics Working Papers 694, UCLA Department of Economics. [Downloadable!]
  6. A. Corcos & J. -P. Eckmann & A. Malaspinas & Y. Malevergne & D. Sornette, 2001. "Imitation and contrarian behavior: hyperbolic bubbles, crashes and chaos," Quantitative Finance Papers cond-mat/0109410, arXiv.org. [Downloadable!]
  7. Bernard Dumas & Alexander Kurshev & Raman Uppal, 2005. "What Can Rational Investors Do About Excessive Volatility and Sentiment Fluctuations?," NBER Working Papers 11803, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Acuña, Andrés & Pinto, Cristián, 2007. "Eficiencia del Mercado Accionario Chileno: Un Enfoque Dinámico usando Tests de Volatilidad
    [Chilean Stock Market Efficiency: A Dynamic Approach using Volatility Tests]    ," MPRA Paper 7387, University Library of Munich, Germany. [Downloadable!]
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  9. John Pippenger, 2002. "A Better Measure of Relative Volatility," University of California at Santa Barbara, Economics Working Paper Series 9-02, Department of Economics, UC Santa Barbara. [Downloadable!]
  10. N Aslanidis & D R Osborn & M Sensier, 2003. "Explaining movements in UK stock prices: How important is the US market?," Centre for Growth and Business Cycle Research Discussion Paper Series 27, Economics, The Univeristy of Manchester. [Downloadable!]
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  11. James Bullard & John Duffy, 1998. "Learning and excess volatility," Working Papers 1998-016, Federal Reserve Bank of St. Louis. [Downloadable!]
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  12. Pier Luigi Sacco, 1991. "Rationality And Stock Market Behavior: What Theoretical Framework (If Any?)," International Economic Journal, Korean International Economic Association, vol. 5(4), pages 17-41, December. [Downloadable!] (restricted)
  13. Lucy F. Ackert & William C. Hunter, 2000. "An empirical examination of the price-dividend relation with dividend management," Working Paper Series WP-00-22, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  14. Philippe Weil, 1989. "On The Possibility of Price Decreasing Bubbles," NBER Working Papers 2821, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Nektarios Aslanidis & Denise Osborn & Marianne Sensier, 2003. "Explaining movements in UK stock prices:," Working Papers 0302, University of Crete, Department of Economics. [Downloadable!]
  16. Dumas, Bernard J & Kurshev, Alexander & Uppal, Raman, 2005. "What Can Rational Investors Do About Excessive Volatility and Sentiment Fluctuations?," CEPR Discussion Papers 5367, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  17. Robert B. Barsky & J. Bradford De Long, 1992. "Why Does the Stock Market Fluctuate?," NBER Working Papers 3995, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Tim Bollerslev & Robert J. Hodrick, 1992. "Financial Market Efficiency Tests," NBER Working Papers 4108, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Leonardo Becchetti & Roberto Rocci & Giovanni Trovato, 2004. "Industry and Time Specific Deviations from Fundamental Values in a Random Coefficient Model," CEIS Research Paper 52, Tor Vergata University, CEIS. [Downloadable!]
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  20. Fernando Díaz & Rodrigo Sánchez, 2001. "Acciones Tecnológicas: ¿Un Episodio De Burbujas Especulativas En El Mercado?," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 4(1), pages 37-82. [Downloadable!]
  21. Franklin Allen & Gary Gorton, 1991. "Rational Finite Bubbles," NBER Working Papers 3707, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, School of Finance and Economics, University of Technology, Sydney. [Downloadable!]
  23. R. Glen Donaldson & Mark Kamstra, . "Forecasting Fundamental Asset Return Distributions," Computing in Economics and Finance 1997 176, Society for Computational Economics. [Downloadable!]
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