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Bubbles Tomorrow and Bubbles Yesterday, but Never Bubbles Today?


  • John C Williams


Considering their importance and the amount of effort that has gone into understanding them, asset price bubbles continue to perplex. The evidence of these bubbles seldom squares with what would be expected from standard asset price theory. Unlike the suggestions from theory, expectations of prices of both stocks and houses tend to be procyclical—price expectations are driven by recent price performance. Thus, price expectations are extrapolative rather than rational, as assumed by standard asset price theory. Recognizing the role of extrapolative expectations in asset pricing will make monetary and macroprudential policy both more robust and more complex.

Suggested Citation

  • John C Williams, 2013. "Bubbles Tomorrow and Bubbles Yesterday, but Never Bubbles Today?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 48(4), pages 224-230, October.
  • Handle: RePEc:pal:buseco:v:48:y:2013:i:4:p:224-230

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    Cited by:

    1. Gelain, Paolo & Lansing, Kevin J., 2014. "House prices, expectations, and time-varying fundamentals," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 3-25.
    2. Bertsatos, Georgios & Sakellaris, Plutarchos, 2016. "A dynamic model of bank valuation," Economics Letters, Elsevier, vol. 145(C), pages 15-18.
    3. Anundsen, André Kallåk & Heebøll, Christian, 2016. "Supply restrictions, subprime lending and regional US house prices," Journal of Housing Economics, Elsevier, vol. 31(C), pages 54-72.
    4. Roman Frydman & Joshua R. Stillwagon, 2016. "Stock-Market Expectations: Econometric Evidence that both REH and Behavioral Insights Matter," Working Papers Series 44, Institute for New Economic Thinking.
    5. Lansing, Kevin J. & Pyle, Benjamin, 2015. "Persistent overoptimism about economic growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    6. repec:eee:jeborg:v:148:y:2018:i:c:p:189-198 is not listed on IDEAS

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