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Stock market bubbles and anti-bubbles

Author

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  • Tarlie, Martin B.
  • Sakoulis, Georgios
  • Henriksson, Roy

Abstract

Using a simple model of equity valuation, we define 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 profitability. Topically, we find that valuation dynamics are explosive in 2017, suggesting the possible formation of an equity bubble in the US.

Suggested Citation

  • Tarlie, Martin B. & Sakoulis, Georgios & Henriksson, Roy, 2022. "Stock market bubbles and anti-bubbles," International Review of Financial Analysis, Elsevier, vol. 81(C).
  • Handle: RePEc:eee:finana:v:81:y:2022:i:c:s1057521918302138
    DOI: 10.1016/j.irfa.2018.07.012
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    More about this item

    Keywords

    Asset pricing; Bubbles; Multiple bubbles; Price explosiveness; Explosive autoregression;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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