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    Greenwood, Robin, Andrei Shleifer, and Yang You. 2019. “Bubbles for Fama.” Journal of Financial Economics 131 (1): 20-43. Abstract

    We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in US and international samples.

    Bordalo, Pedro, Nicola Gennaioli, Rafael LaPorta, and Andrei Shleifer. 2019. “Diagnostic Expectations and Stock Returns.” Journal of Finance 74 (6): 2839-2874. Abstract

    We revisit La Porta's finding that returns on stocks with the most optimistic analyst long‐term earnings growth forecasts are lower than those on stocks with the most pessimistic forecasts. We document the joint dynamics of fundamentals, expectations, and returns of these portfolios, and explain the facts using a model of belief formation based on the representativeness heuristic. Analysts forecast fundamentals from observed earnings growth, but overreact to news by exaggerating the probability of states that have become more likely. We find support for the model's predictions. A quantitative estimation of the model accounts for the key patterns in the data.

    Barberis, Nicholas, Robin Greenwood, Lawrence Jin, and Andrei Shleifer. 2018. “Extrapolation and Bubbles.” Journal of Financial Economics 129 (2): 203-227.